Practicalities of recording and reporting LTA utilisation

JamTomorrow

I'm overthinking, as this is both a long way off for me and likely to change before it becomes relevant, but I'm intrigued as to how the complexity of the Pension LTA is meant to be practically managed.  

For those doing an annual BCE that utilises a random % of the LTA each year are there HMRC accepted methods of how that is tracked and reported year on year?  Can I track to 1dp for example and mange withdrawals so as to round down each year, crystallise 3.499% and track 3% utilisation.

Will I be expected to keep a spreadsheet, or something similar such as reporting in annual self-assessment, from age 55/57 to 75 with an audit trail of withdrawls across multiple providers, or will my word/spreadsheet be sufficient if there any questions from HMRC?  "Look Gov, I have only crystallised 95% of the LTA, it says so there in my spreadsheet, honest"  Is it correct to assume that if I have my pension with only 1 provider then they will be tracking the LTA utilisation and will inform me/HMRC if I exceed 100%? If I move providers when I get to 99% will they need to inform the new supplier that this client has used 99% of their LTA?

If i do make a 'mistake' and utilise more than 100% without paying the higher rate then what are the consequences - is it just paying the missed tax that I should have paid or would there also be interest, fines, prison   Personally, like most on this board I don't think we will be in a position to claim an honest mistake but I am sure there will be plenty that will fall into that trap so how would HMRC know and manage?

Also, if I die at 74 having utilsed 99% of my LTA but still have £1m uncrystalisd in my pension then would that pass to my beneficiaries tax free if still in a pension wrapper and therefore LTA utilisaiton is no longer relevant.  Or would the Exector of my Will need to know the details behind my cumulatively LTA utilisation.  

Apologies for lots of questions but hopefully the discussion will be helpful to others now and myself in the future (although unliklely as the rules will have changed by then as this feels so complex and a nightmare/impossible for HMRC to administer effectively).

tacpot12

My SIPP provider sends me an email each time I make a withdrawal that confirms the amount of LTA that the withdrawal has used up, and also gives me a cumulative figure. 

If you have multiple providers, each provider will need to know how much LTA you have left, but they only need this when you make or withdrawal or at the trigger points. I would suggest that you drawdown on one pension at a time, thus the current provider can do all the tracking. Once that pension is exhausted (if this ever happens), you can tell the next provider where you are upto and they can report your usage of the LTA from that point onwards. 

I think keeping a seperate spreadsheet is a good idea, but you don't need to keep it bang up to date. Your executors will be able to get your LTA usage from your pension providers, and should be able to bring your spreadsheet up to date.

zagfles

I'm not sure why you think it's hard for HMRC to administer. They seem to keep track of how much bank interest you've earned across multiple banks, so keeping track of LTA usage across multiple providers will likely be easier, the pension provider will have your NI number and LTA % used at each BCE, it's just a case of adding them up. If you don't declare going over 100% LTA they'll catch up with you eventually, not sure what the consequences will be other than obviously paying the charge you owe.

Albermarle

Also, if I die at 74 having utilsed 99% of my LTA but still have £1m uncrystalisd in my pension then would that pass to my beneficiaries tax free if still in a pension wrapper and therefore LTA utilisaiton is no longer relevant.  Or would the Exector of my Will need to know the details behind my cumulatively LTA utilisation.  

As far as I understand it , if you die before 75 , your beneficiaries can take the pension tax free, but LTA will still come into play .

The exact mechanics of how, I am not sure.

Suggest you wait for better informed comments .

dunstonh

For those doing an annual BCE that utilises a random % of the LTA each year are there HMRC accepted methods of how that is tracked and reported year on year?

Yes

Can I track to 1dp for example and mange withdrawals so as to round down each year, crystallise 3.499% and track 3% utilisation.

No.
LTA is to 2dp and rounded down. e.g. 25.558% would be 25.55%.

Will I be expected to keep a spreadsheet, or something similar such as reporting in annual self-assessment, from age 55/57 to 75 with an audit trail of withdrawls across multiple providers, or will my word/spreadsheet be sufficient if there any questions from HMRC? 

Your pension provider will tell you the percentage you have used.  You retain that information.

Is it correct to assume that if I have my pension with only 1 provider then they will be tracking the LTA utilisation and will inform me/HMRC if I exceed 100%?

They will track LTA that you use with them.    

 If I move providers when I get to 99% will they need to inform the new supplier that this client has used 99% of their LTA?

Yes.   And when you get to age 75, BCE 5a & 5b apply, some providers will allow you to self declare you are or are not in breach of the LTA and others will ask you for a specific breakdown.

If i do make a 'mistake' and utilise more than 100% without paying the higher rate then what are the consequences - is it just paying the missed tax that I should have paid or would there also be interest, fines, prison   

You will pay the due tax plus penalty interest (which can more than double the figure)

Personally, like most on this board I don't think we will be in a position to claim an honest mistake but I am sure there will be plenty that will fall into that trap so how would HMRC know and manage?

Pension data is stored under your NI number.  It is an electronic system that flags up issues.   There is a lag though as getting it flagged and finally getting someone at HMRC to look it can take several years.

Also, if I die at 74 having utilsed 99% of my LTA but still have £1m uncrystalisd in my pension then would that pass to my beneficiaries tax free if still in a pension wrapper and therefore LTA utilisaiton is no longer relevant.  Or would the Exector of my Will need to know the details behind my cumulatively LTA utilisation.  

BCE 5c covers that.   It would trigger an LTA tax charge. (some other BCEs could apply depending on circumstances)

Pensions are not subject to your estate and the executor of the Will is not necessarily the person that will be chosen to deal with pension admin.   

 this feels so complex and a nightmare/impossible for HMRC to administer effectively

They manage quite well.  They leave it to individuals to maintain and report things under self-assessment and if you get it wrong, they can charge you more for doing so.

However, it is not difficult if you keep records.

zagfles

dunstonh said:

Also, if I die at 74 having utilsed 99% of my LTA but still have £1m uncrystalisd in my pension then would that pass to my beneficiaries tax free if still in a pension wrapper and therefore LTA utilisaiton is no longer relevant.  Or would the Exector of my Will need to know the details behind my cumulatively LTA utilisation.  

BCE 5c covers that.   It would trigger an LTA tax charge. (some other BCEs could apply depending on circumstances)

Pensions are not subject to your estate and the executor of the Will is not necessarily the person that will be chosen to deal with pension admin.   

Just further on this as it's often misunderstood. It's not death that triggers BCE5C, it's the designation of funds into a dependant/nominee's drawdown. It can be avoided by waiting 2 years before designating the funds, but the downside is the drawdown will then be taxable as income on the beneficiary. So if the uncrystallised pension blows the remaining LTA, beneficiaries have the choice of paying the LTA charge or being subject to income tax on the drawdown if they're prepared to wait 2 years. See:

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm088660

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm072430

Albermarle

zagfles said:

dunstonh said:

Also, if I die at 74 having utilsed 99% of my LTA but still have £1m uncrystalisd in my pension then would that pass to my beneficiaries tax free if still in a pension wrapper and therefore LTA utilisaiton is no longer relevant.  Or would the Exector of my Will need to know the details behind my cumulatively LTA utilisation.  

BCE 5c covers that.   It would trigger an LTA tax charge. (some other BCEs could apply depending on circumstances)

Pensions are not subject to your estate and the executor of the Will is not necessarily the person that will be chosen to deal with pension admin.   

Just further on this as it's often misunderstood. It's not death that triggers BCE5C, it's the designation of funds into a dependant/nominee's drawdown. It can be avoided by waiting 2 years before designating the funds, but the downside is the drawdown will then be taxable as income on the beneficiary. So if the uncrystallised pension blows the remaining LTA, beneficiaries have the choice of paying the LTA charge or being subject to income tax on the drawdown if they're prepared to wait 2 years. See:

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm088660

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm072430

Have you any idea what the logic is behind this two year rule ? Seems a bit peculiar.

zagfles

Albermarle said:

zagfles said:

dunstonh said:

Also, if I die at 74 having utilsed 99% of my LTA but still have £1m uncrystalisd in my pension then would that pass to my beneficiaries tax free if still in a pension wrapper and therefore LTA utilisaiton is no longer relevant.  Or would the Exector of my Will need to know the details behind my cumulatively LTA utilisation.  

BCE 5c covers that.   It would trigger an LTA tax charge. (some other BCEs could apply depending on circumstances)

Pensions are not subject to your estate and the executor of the Will is not necessarily the person that will be chosen to deal with pension admin.   

Just further on this as it's often misunderstood. It's not death that triggers BCE5C, it's the designation of funds into a dependant/nominee's drawdown. It can be avoided by waiting 2 years before designating the funds, but the downside is the drawdown will then be taxable as income on the beneficiary. So if the uncrystallised pension blows the remaining LTA, beneficiaries have the choice of paying the LTA charge or being subject to income tax on the drawdown if they're prepared to wait 2 years. See:

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm088660

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm072430

Have you any idea what the logic is behind this two year rule ? Seems a bit peculiar.

Don't know, might be to avoid providers having to keep LTA records indefinitely. For instance if someone nominated their grandchild as beneficiary and they decide to wait till they're retired to put it into drawdown maybe 60 years later, by which time the whole LTA scheme will probably have been replaced by something radically different.

Secret2ndAccount

HMRC allows 2 years after a death for the pension distribution to be sorted out. Otherwise the pension may become liable to be taxed as income of the recipient. This is a general rule. Exploiting this as an option because it works out cheaper than an LTA charge is an edge case - most likely accidental. 
2 years seems a reasonable number for all parties. Knowing the glacial pace at which some pension companies work, 1 year might be cutting it fine even in a straightforward case.

Albermarle

 Knowing the glacial pace at which some pension companies work, 

I can agree with that .

JamTomorrow

Thanks for all the responses, really helpful.