Consequences if the Pension LTA tax is re-introduced by Labour?

tiring33

I'm in the same position, over 55, over the LTA and wondering how best to lock in the benefit of the LTA changes in the last budget. In my circumstances the benefit of avoiding an LTA charge far outweighs the issue of bringing tax free cash into my estate and finding something to do with it, I can deal with that. So is it best to 1) fully crystallise before April '24, 2) wait until after April '24 or 3) wait to see the outcome of the next election and what a new Governement decides to do with the LTA?

1) Fully crystallising before April '24 means my pension provider still goes through the formal process of assessing my pot and applying a charge of 0% to funds in excess of the LTA. My pot should then be fully crystallised and in drawdown. This has some appeal as i would hope that a new government would not reintroduce the LTA in a way that would make me do the LTA test again, just because they didn't like the 0% charge at the time. At least I would have a formal record that I had 'paid' the LTA (at 0%).

2) After April '24 there will be no LTA test and possibly no record of my pot ever being crystallised (as the concept of crystallisation may have been abandoned), but it's difficult to say whether that is better, or worse, than having the formal record of crystallising before April '24.

3) Waiting to see what a new Government does with the LTA makes me feel very uncomfortable - I don't think I could stand the uncertainty.

I know the general advice in these circumstances is to 'seek professional advice from a qualified IFA' but I've done that - and they don't know. Any thoughts/opinions from this community would be most welcome.

MoneySavingGerbil

tiring33 said:

2) After April '24 there will be no LTA test and possibly no record of my pot ever being crystallised (as the concept of Crystallisation may have been abandoned), but it's difficult to say whether that is better, or worse, than having the formal record of crystallising before April '24.

My wife will be over LTA and through luck I think it will be your option 2that takes effect for her. Currently 44% of LTA already used via DC crystalisation with another DC pot still uncrystalised and a DB pension due to come into payment in May 24. Original plan was to crystalize the remaining DC pot after May 24 to avoid paying much LTA charge on the DB pension, but that plan is now reversed. i.e. crystalize remaing DC pot before April 24 leaving her still under LTA then DB pension comes into payment in May 24 when hopefully LTA doesn't exist. No charge to pay and DB pension doesn't get reduced.

I don't see any future Labour government retrospectively trying to apply charges for this brief (14 month?) period. The amounts are small in the grand scheme of things and as you've pointed out, the records they need may no longer exist.

Albermarle

One possibility is to hedge your bets.
Part crystallise, or just crystallise one pot if you have more than one.

If LTA is then reintroduced at maybe even a lower level, you could well still be OK.
Plus you only expose a lower amount to IHT if that is an issue,
Plus less issues with CGT/dividend/interest taxes with a smaller  tax free lump sum.

zagfles

tiring33 said:

I'm in the same position, over 55, over the LTA and wondering how best to lock in the benefit of the LTA changes in the last budget. In my circumstances the benefit of avoiding an LTA charge far outweighs the issue of bringing tax free cash into my estate and finding something to do with it, I can deal with that. So is it best to 1) fully crystallise before April '24, 2) wait until after April '24 or 3) wait to see the outcome of the next election and what a new Governement decides to do with the LTA?

1) Fully crystallising before April '24 means my pension provider still goes through the formal process of assessing my pot and applying a charge of 0% to funds in excess of the LTA. My pot should then be fully crystallised and in drawdown. This has some appeal as i would hope that a new government would not reintroduce the LTA in a way that would make me do the LTA test again, just because they didn't like the 0% charge at the time. At least I would have a formal record that I had 'paid' the LTA (at 0%).

2) After April '24 there will be no LTA test and possibly no record of my pot ever being crystallised (as the concept of crystallisation may have been abandoned), but it's difficult to say whether that is better, or worse, than having the formal record of crystallising before April '24.

3) Waiting to see what a new Government does with the LTA makes me feel very uncomfortable - I don't think I could stand the uncertainty.

I know the general advice in these circumstances is to 'seek professional advice from a qualified IFA' but I've done that - and they don't know. Any thoughts/opinions from this community would be most welcome.

Why do you think the concept of crystallisation will be abandoned? There will need to be some marker as to whether the PCLS has been taken from the pot, unless they're not going to retain the 25% cap and just have the overall cap on total PCLS. But highly unlikely they'll allow someone with a £268k pot to take it all tax free!

The other thing to bear in mind is there's a possibility that you could be worse off crystallising now/before the election - if the LTA is reintroduced but at a higher level together with its link to the max PCLS.

It's all guesswork, might be worth waiting to see exactly how the LTA is going to be removed from the legislation, and see if Labour give any clue as to how they actually intend to reintroduce it (although highly unlikely they'll give much detail, they just seem to want to use it as a political football).

zagfles

Albermarle said:

One possibility is to hedge your bets.
Part crystallise, or just crystallise one pot if you have more than one.

If LTA is then reintroduced at maybe even a lower level, you could well still be OK.
Plus you only expose a lower amount to IHT if that is an issue,
Plus less issues with CGT/dividend/interest taxes with a smaller  tax free lump sum.

What would be the point of that? You say a smaller TFLS, so presumably you mean crystallise less than 100% of current LTA. So how would it make a difference compared to not crystallising at all? Only way I can see if the LTA was introduced but at different level to now, if at a higher level than partly crystallising now you'd be worse off, at a lower level it'd make you better off.

But partly crystallising below LTA means you get zero advantage of the current 0%/LTA abolision should it be reintroduced, because you've not used up & exceeded the LTA during the small window where there was no LTA charge!

Albermarle

zagfles said:

Albermarle said:

One possibility is to hedge your bets.
Part crystallise, or just crystallise one pot if you have more than one.

If LTA is then reintroduced at maybe even a lower level, you could well still be OK.
Plus you only expose a lower amount to IHT if that is an issue,
Plus less issues with CGT/dividend/interest taxes with a smaller  tax free lump sum.

What would be the point of that? You say a smaller TFLS, so presumably you mean crystallise less than 100% of current LTA. So how would it make a difference compared to not crystallising at all? Only way I can see if the LTA was introduced but at different level to now, if at a higher level than partly crystallising now you'd be worse off, at a lower level it'd make you better off.

But partly crystallising below LTA means you get zero advantage of the current 0%/LTA abolision should it be reintroduced, because you've not used up & exceeded the LTA during the small window where there was no LTA charge!

I did say in my post also what I have highlighted in bold in your post. In that scenario it could work.

But partly crystallising below LTA means you get zero advantage of the current 0%/LTA abolision should it be reintroduced, because you've not used up & exceeded the LTA during the small window where there was no LTA charge!
But you would still be better protected against IHT.

Just ideas really as each persons situation is different, and we have no idea what will happen anyway. Although as has been mentioned previously I suspect LTA will remain abolished, but IHT exemption will come under the spotlight.

tiring33

Why do you think the concept of crystallisation will be abandoned? 

What i wrote was that it may be abandoned, not that it will be abandoned.

There will continue to be a requirement to track consumption of the Tax Free Lump Sum, but i would hope that won't require anywhere near the level of complexity the LTA introduced with the long list of Benefit Crystallisation Events, surely the whole thing can be simplified.

Having said that concept of crystallised and non-crystallised funds may still be retained in some form.

MK62

My view is that I wouldn't be expecting the whole pension situation, as it exists now, to persist for long..........with the pressure on public finances, and the range of revenue raising options available, it won't be long before eyes are cast in that direction again, no matter which party is in power.......personally I think its just a case of what form it will take.......there are quite a few options, each with pros and cons.........but something will be coming........imho of course....😉

zagfles

Albermarle said:

zagfles said:

Albermarle said:

One possibility is to hedge your bets.
Part crystallise, or just crystallise one pot if you have more than one.

If LTA is then reintroduced at maybe even a lower level, you could well still be OK.
Plus you only expose a lower amount to IHT if that is an issue,
Plus less issues with CGT/dividend/interest taxes with a smaller  tax free lump sum.

What would be the point of that? You say a smaller TFLS, so presumably you mean crystallise less than 100% of current LTA. So how would it make a difference compared to not crystallising at all? Only way I can see if the LTA was introduced but at different level to now, if at a higher level than partly crystallising now you'd be worse off, at a lower level it'd make you better off.

But partly crystallising below LTA means you get zero advantage of the current 0%/LTA abolision should it be reintroduced, because you've not used up & exceeded the LTA during the small window where there was no LTA charge!

I did say in my post also what I have highlighted in bold in your post. In that scenario it could work.

But partly crystallising below LTA means you get zero advantage of the current 0%/LTA abolision should it be reintroduced, because you've not used up & exceeded the LTA during the small window where there was no LTA charge!
But you would still be better protected against IHT.

Just ideas really as each persons situation is different, and we have no idea what will happen anyway. Although as has been mentioned previously I suspect LTA will remain abolished, but IHT exemption will come under the spotlight.

Even it was reintroduced at a lower level than now, it'll almost certainly come with similar protections to those when the LTA was lowered previously. So then partially crystallising would have no advantage over leaving the pot uncrystallised and be worse protected againt IHT.

It's all guesswork but ISTM that partially crystallising now just gets the worst of all worlds in any realistic scenarios, either fully crystallising now or not crystallising at all would likely be better.

RogerPensionGuy

Looking back at how all governments have played about with pensions these last 20 years, I feel they will be tinkering again soon, upping the AA by 50% may look too big by some, removing the LTA and keeping the current IHT rules may look far to generous to some, freezing the 25% tax-free at 268K not too upsetting maybe.

If they had just of raised the LTA to the 1.5/1.8M range and raised the AA by 25% to 50K maybe it could have survived a few years but, I think with so many tuff years coming this low hanging cash tree will be getting trimmed in 2025 or 2026, however 2025 is my guess.

Reference activating pension stuff close either side of 6th April, I still feel just after is in my head now.