LTA: remove charge from April 2023 and abolish from April 2024

Sterlingtimes

"This measure ensures that nobody will face an LTA charge from April 2023."

"The measures to ensure that no-one will face an LTA charge from April 2023 will have effect on and after 6 April 2023."

"LTA: remove charge from April 2023 and abolish from April 2024"

Pension Tax Limits - GOV.UK (www.gov.uk)

This confirms that nobody will face the LTA Charge, including people reaching their 75th birthday.

What is the difference between removal and abolition? Is April 2023 as good as April 2024 for all intents and purposes?

Now what is the Labour Party's angle on this? Do they say, "let us pretend that it was never abolished in the first place"? Do all crystallisation events come to light again?

Pat38493

I don’t think there is any difference - it just means that from April 2023 the charging rates which were previously 25% and 55% are now 0% and 0% so theoretically you would still get an LTA charge under the law, but the charge is zero.

This can be done quickly whereas repealing the laws on LTA requires a lot of parliamentary time and can’t be done by April 6th.

Also - the LTA legislation is required in order to enforce the 25% tax free cash limit to be capped at 25% of the current 2022/23 LTA value unless and until they create a different legislation to enforce that.

This will also create weird quirks - for example if you have multiple schemes, you won’t be able to take your entire 25% tax free cash from just one of the schemes as this wasn’t possible neither under the LTA regime and we will still be operating under the same system fort he time being.

RogerPensionGuy

Sterlingtimes said:

"This measure ensures that nobody will face an LTA charge from April 2023."

"The measures to ensure that no-one will face an LTA charge from April 2023 will have effect on and after 6 April 2023."

"LTA: remove charge from April 2023 and abolish from April 2024"

Pension Tax Limits - GOV.UK (www.gov.uk)

This confirms that nobody will face the LTA Charge, including people reaching their 75th birthday.

What is the difference between removal and abolition? Is April 2023 as good as April 2024 for all intents and purposes?

Now what is the Labour Party's angle on this? Do they say, "let us pretend that it was never abolished in the first place"? Do all crystallisation events come to light again?

As I read it the LTA is currently active at 1.073M until the 5th of April 2023 and if anyone activates a DB or crystallises a DC scheme on or before this date they will pay the LTA charge if over the 1.073K limit.

Then from 06APR2023 no LTA charges will be applied at all and the LTA will remain in name only and it will be removed in name in April2024. 

I very very nearly activated a DB scheme this month to minimise % use of the LTA before it gets uplifted due to an inflation uplift April2023. I'm now so happy that I didn't and it can grow more before activating it and now happier topping up another DC scheme I have.

The LTA has just been a shambles, it was sort of ok at 1,5M in 2006 and then up to 1.8M in 2011 and then just pulled downwards and people unable to plan. My guess is it will come back anytime but probably at 1.8/2.0M range if before 2027.    

Sterlingtimes

Pat38493 said:

I don’t think there is any difference - it just means that from April 2023 the charging rates which were previously 25% and 55% are now 0% and 0% so theoretically you would still get an LTA charge under the law, but the charge is zero.

This can be done quickly whereas repealing the laws on LTA requires a lot of parliamentary time and can’t be done by April 6th.

Also - the LTA legislation is required in order to enforce the 25% tax free cash limit to be capped at 25% of the current 2022/23 LTA value unless and until they create a different legislation to enforce that.

This will also create weird quirks - for example if you have multiple schemes, you won’t be able to take your entire 25% tax free cash from just one of the schemes as this wasn’t possible neither under the LTA regime and we will still be operating under the same system fort he time being.

That is helpful to me and answers my question. Thank you.

Sterlingtimes

RogerPensionGuy said:

The LTA has just been a shambles, it was sort of ok at 1,5M in 2006 and then up to 1.8M in 2011 and then just pulled downwards and people unable to plan. My guess is it will come back anytime but probably at 1.8/2.0M range if before 2027.    

Thank you. It certainly took me a considerable about of Googling over the years to gain a good grip on LTA. I stopped work on the day that my LTA reached 100%. I took a little more by way of a small pot arrangement. At 67, I have been taking money from my SIPP while remaining in the 20% tax band and transferring money to an ISA. The problem is that the amount I can take from the SIPP diminishes yearly with inflation and frozen tax bands. Could this be the end of silly contrivances and predictions about whether I will reach 75 and suffer the tax person's birthday present?

tiring33

Pat38493 said:

I don’t think there is any difference - it just means that from April 2023 the charging rates which were previously 25% and 55% are now 0% and 0% so theoretically you would still get an LTA charge under the law, but the charge is zero.

So if you have crystallised 100% of your LTA and taken your maximum PCLS, but you still have some uncrystallised funds left in your pension (which you were leaving untouched to avoid the 25% charge against crystallising them until the latest possible moment i.e. 75), do you think you can now effectively crystallise those funds and pay 0% tax, thereby having all your pension crystallised?

My DC pension is with Scottish Widows who divide their pension accounts into two parts 1) Retirement Planning (for the uncrystallised funds subject to an LTA test when they crystallise) and 2) Retirement Income (for the crystallised funds where no further LTA test is required - until 75 when growth is assessed). Once I have taken my full PCLS, in theory I could ask them to crystallise my remaining uncrystallised funds (the ones above my LTA), applying a 0% LTA charge when they crystallise and move everything into the Retirement Income/crystallised side of the pension, thus locking in the 0% rating on these funds (before it is reversed by a future Labour government!).

Or is this just wishful thinking.

zagfles

tiring33 said:

Pat38493 said:

I don’t think there is any difference - it just means that from April 2023 the charging rates which were previously 25% and 55% are now 0% and 0% so theoretically you would still get an LTA charge under the law, but the charge is zero.

So if you have crystallised 100% of your LTA and taken your maximum PCLS, but you still have some uncrystallised funds left in your pension (which you were leaving untouched to avoid the 25% charge against crystallising them until the latest possible moment i.e. 75), do you think you can now effectively crystallise those funds and pay 0% tax, thereby having all your pension crystallised?

My DC pension is with Scottish Widows who divide their pension accounts into two parts 1) Retirement Planning (for the uncrystallised funds subject to an LTA test when they crystallise) and 2) Retirement Income (for the crystallised funds where no further LTA test is required - until 75 when growth is assessed). Once I have taken my full PCLS, in theory I could ask them to crystallise my remaining uncrystallised funds (the ones above my LTA), applying a 0% LTA charge when they crystallise and move everything into the Retirement Income/crystallised side of the pension, thus locking in the 0% rating on these funds (before it is reversed by a future Labour government!).

Or is this just wishful thinking.

Yes, that should work. Wait till new tax year and make sure the legislation has been passed and they've not backtracked on it as they've done on other budgets!!

tiring33

zagfles said:

Yes, that should work. Wait till new tax year and make sure the legislation has been passed and they've not backtracked on it as they've done on other budgets!!

If that's right (which I hope it is) and given Labour's stated intention to reverse the plan, it would seem sensible  for anyone currently above their LTA, to use up 100% of their LTA by taking their maximum PCLS and assigning the entire fund to drawdown. If they only take their PCLS (not income) they don't trigger the MPAA and can carry on saving and paying into their pension if they wish.

Can't believe it will be this easy to be honest. More likely perhaps, the whole concept of uncrystallised and crystallised funds and 'Benefit Crystallisation Events' will be abandoned completely (hooray) and replaced with some other mechanism to get at the funds.

gm0

@tiring33 - it remains to be seen whether the details reach the providers post April exactly as described and allow the transaction you describe.

Cautiously - yes. At face value it appears that the LTA charge % has indeed been changed to 0% effective new tax year so abolition in practice via the changed rate with full abolition in law to follow

If so when all details flow down to providers then first crystallisation of a residual income stream @20x or a pot above LTA would indeed attract an notional LTA penalty but at the new 0% rate instead of 25% with no tax free cash as usual

I cannot see any issues actually blocking crystallisation in those circumstances. 

Whether it is a good or bad hedge against future regulation to take it across or not to take it across is of course impossible to say.

A future government may introduce different taxes at 75 or death or revoke IHT exemption on DC pensions, further restrict TFC or do anything else it likes including fiddling with the crystallisation event at pension access.

Pat38493

^^ I don't see why not.  Of course you won't get any further tax free cash from the uncrystallised part but this was always the case anyway if you had already used the LTA so no change there.

Obviously you have to do it after 6th April and check with SW.

jaypers

Pat38493 said:

^^ I don't see why not.  Of course you won't get any further tax free cash from the uncrystallised part but this was always the case anyway if you had already used the LTA so no change there.

Obviously you have to do it after 6th April and check with SW.

Not sure the tax free cash part is correct. I’ve already spoken to my advisor as I crystallised when LTA was £1.03m. Although not confirmed, they think that it is entirely feasible that another £10,750 of tax free cash may be available (Difference between original crystallisation event and current maximum). Awaiting finance bill on 23rd to find out!