LTA/LAC with mix of SIPP and a DB

ss2

Couple of questions on LTA/LAC for the case where I have a SIPP and a DB. 

I’ve trawled and found plenty of SIPP-only LTA examples, plus separately how you calc the DB equivalent (* 20), but not how the two interact with BCE.  Is there a good resource somewhere, or should I just go read the gov docs?

I believe if LTA has already been reached before DB starts at 60, then the DB is just taxed at source at 25% by the schema administrator.  My questions are the reverse, where the DB starts before LTA has been reached:

i) Let’s say I’m 55 with:

SIPP: 900,000

DB: 4,000 at 60

If I take PCLS of 25%, then all the SIPP is crystallised and LTA percentage would be ~84%.

When the DB kicks in, LTA percent goes to ~91%.

At 75, if there is sufficient growth for the crystallised pot to breach LTA, then there will be a LAC.

But what happens to ongoing DB after 75?  Does the scheme administrator need to also start taxing DB at 25%, or is there a one-off charge?

ii) If there is sufficient growth + BCEs to reach LTA after DB start at 60 but before 75, then again what happens to the DB?

e.g. at 55, taking 400,000 as UFPLS would eventually mean ~37% LTA is used.  SIPP remaining is 500,000.

Then at 65, the SIPP might have grown to 675000. If I switch all of that to UFPLS, then LTA is 100% used eventually.

(In the above, I’ve ignored inflation, LTA freeze, MPAA, IHT concerns etc.)

Thanks!

Notepad_Phil

If your DB starts prior to you breaking the LTA then you're fine - it will not be impacted when your SIPP causes the LTA to be breeched, it will only be that event and any subsequent benefit crystallisation events on the SIPP that will be affected.

ss2

I guess that makes sense - LTA test is only ever at BCEs.  For the DB that is exactly once (even when started or at 75).

The DB BCE does contribute to the LTA percentage used, so it does affect if/when later SIPP gets LAC taxed, even if the DB itself is never LAC taxed.

I had convinced myself that that is a loophole in the insanely complex LTA rules, guess not!

Marcon

ss2 said:

I guess that makes sense - LTA test is only ever at BCEs.  For the DB that is exactly once (even when started or at 75).

The DB BCE does contribute to the LTA percentage used, so it does affect if/when later SIPP gets LAC taxed, even if the DB itself is never LAC taxed.

I had convinced myself that that is a loophole in the insanely complex LTA rules, guess not!

Not exactly a loophole, but did you know that you can have up to 3 'small pot' personal pensions (no more than £10K each) and cashing those in under the small pots rule uses 0% of the LTA? Doesn't trigger the MPAA, either.

ss2

Yup - aware of the small pot/MPAA rules through other helpful forum posts on here.