When does the announced change to the LTA actually come into effect (legally)

Grumpy_chap

Does this changing the rules at whim make it better to take the 25% tax free lump sum while it is secure rather than annual tax free which may be cut off in the future?

leosayer

Pat38493 said:

leosayer said:

It also introduces a maximum tax-free cash amount of £268,275.

I don't think this was even needed because the tax free limit was forced to this amount by the existence of the LTA, so just by changing the charge rates for LTA charges to zero, the tax limit of 25% of the LTA remains law.  

You're right, the clause states that lump sums are to be chargeable at marginal rate where they would have previously been subject to the LTA tax charge. 

The interesting side-effect for me is that whilst my pension savings were close to the LTA, I could "only" take around £190k tax free cash from my DB + DC pensions which is well short of the new £268k maximum.

Scot_39

The new 268k is not new though - it's simply 25% of a DC pot at the current LTA - 1.073m

leosayer

Scot_39 said:

The new 268k is not new though - it's simply 25% of a DC pot at the current LTA - 1.073m

It's new for me.

Under the old regime, someone with DB and DC could have paid 55% tax on lump sums under £268k.

Scot_39

Are we confusing two seperate things here.

There was a 55% penalty charge on lump sum withdrawal taken - but only on benefits value taken from (DC or DBx 20?) above a value equivalent to 1.07m LTA

The £268K was and will currently remain completely tax free - for a DC scheme simply the 25% allowance of 1.07m LTA cap.

The 55% was a special charge - as was the 25% charge on taking benefits in form of lump sum - but only from pension savings above the 1.07m.

See e.g. and this was just the first link on google

https://adviser.royallondon.com/technical-central/pensions/benefit-options/lifetime-allowance-charge/

Sure a proper IFA here can explain why you might be charged 55% below.

My guess lump sum less than 25% of tested value - so DB lump released component less than 5x final salary pension - if 20x correct value factor ?

Pat38493

Scot_39 said:

Are we confusing two seperate things here.

There was a 55% penalty charge on any lump sum taken - but only on benefits above a value equivalent to 1.07m LTA

The £268K was and I believe is completely tax free - it's for a DC scheme essentially the PCLS cap. And it's not changing.

The 55% was a special charge - as was the 25% charge on taking benefits inform of income above 1.07m from pension savings above the 1.07m.

It was in effect a penalty for exceeding excess contributions - as the name applies - over a lifetime.

See e.g. and this was just the first link on google

https://adviser.royallondon.com/technical-central/pensions/benefit-options/lifetime-allowance-charge/

I think what he means is that with a DB pension, the PCLS might be less than 25% of the used amount of LTA by putting he pension into payment - in fact it usually is from what I’ve seen, so this would effectively limits your total tax free cash to less than the 268k

however from what I’ve seen, I suspect that this still applies in 23/24 because the tax free lump sum is still following the same process using the LTA calculations.

deaglecat

Thanks for that.    And for all the replies.    Most helpful.       FWIW:   I will take the (small) risk and exceed the (currently enacted) LTA.

I think we can consider this thread closed now.   

Cheers

Deag.

Albermarle

Pat38493 said:

Scot_39 said:

Are we confusing two seperate things here.

There was a 55% penalty charge on any lump sum taken - but only on benefits above a value equivalent to 1.07m LTA

The £268K was and I believe is completely tax free - it's for a DC scheme essentially the PCLS cap. And it's not changing.

The 55% was a special charge - as was the 25% charge on taking benefits inform of income above 1.07m from pension savings above the 1.07m.

It was in effect a penalty for exceeding excess contributions - as the name applies - over a lifetime.

See e.g. and this was just the first link on google

https://adviser.royallondon.com/technical-central/pensions/benefit-options/lifetime-allowance-charge/

I think what he means is that with a DB pension, the PCLS might be less than 25% of the used amount of LTA by putting he pension into payment - in fact it usually is from what I’ve seen, so this would effectively limits your total tax free cash to less than the 268k

however from what I’ve seen, I suspect that this still applies in 23/24 because the tax free lump sum is still following the same process using the LTA calculations.

Yes, for example I took a DB pension without taking any lump sum.

Does that mean I can take £268K in tax free from my DC pots ( which would be more than 25%)?
For the reason you say, I think not for 23/24 and maybe afterwards as well ? 

Personally with only being in 'just over LTA ' territory, I think I would have preferred the LTA to have increased 10 or 20% rather than be abolished, as I could get more tax free cash out.