Do DB pensions still count against tax free cash allowance?

Pat38493

Does anyone know whether it's been clarified whether putting a DB pension into payment will limit the amount of tax free cash you can take from DC pensions later on?

If I understand correctly, under the old regime, if I put in a DB pension into payment (even without taking a lump sum), it would trigger the corresponding % of the LTA to be used.  This would then effectively limit the amount of future tax free cash I could take from DC pots as you effectively couldn't take tax free cash if you have used up the LTA.

Under the new regime, the government stated that tax free cash would be limited to the current level, but the LTA is abolished.  Does this mean that my DB pension theoretically LTA value doesn't count against the tax free cash anymore so I could still take £250K of tax free cash even after putting a DB pension into payment (without taking a PCLS)  or is this not the case?

It's also possible that my base understanding is wrong anyway so please correct me if that's the case.

dunstonh

Does anyone know whether it's been clarified whether putting a DB pension into payment will limit the amount of tax free cash you can take from DC pensions later on?

It will.   The LTA is still being recorded and that information is what is used currently.

If I understand correctly, under the old regime, if I put in a DB pension into payment (even without taking a lump sum), it would trigger the corresponding % of the LTA to be used.  This would then effectively limit the amount of future tax free cash I could take from DC pots as you effectively couldn't take tax free cash if you have used up the LTA.

We are still under that regime.

Under the new regime, the government stated that tax free cash would be limited to the current level, but the LTA is abolished.

It hasn't been abolished yet.  The LTA charge was set to zero but all the mechanisms are still in place and being followed.

Pat38493

dunstonh said:

Does anyone know whether it's been clarified whether putting a DB pension into payment will limit the amount of tax free cash you can take from DC pensions later on?

It will.   The LTA is still being recorded and that information is what is used currently.

If I understand correctly, under the old regime, if I put in a DB pension into payment (even without taking a lump sum), it would trigger the corresponding % of the LTA to be used.  This would then effectively limit the amount of future tax free cash I could take from DC pots as you effectively couldn't take tax free cash if you have used up the LTA.

We are still under that regime.

Under the new regime, the government stated that tax free cash would be limited to the current level, but the LTA is abolished.

It hasn't been abolished yet.  The LTA charge was set to zero but all the mechanisms are still in place and being followed.

OK thanks Dunstoh but do we know whether this will still be the case when the new legislation comes and the LTA is removed from law completely?  They would still have to keep a kind of "fake" LTA calculation to do that I guess, because when I take a DB pension without PCLS, I am not taking any tax free cash.

Albermarle

Pat38493 said:

dunstonh said:

Does anyone know whether it's been clarified whether putting a DB pension into payment will limit the amount of tax free cash you can take from DC pensions later on?

It will.   The LTA is still being recorded and that information is what is used currently.

If I understand correctly, under the old regime, if I put in a DB pension into payment (even without taking a lump sum), it would trigger the corresponding % of the LTA to be used.  This would then effectively limit the amount of future tax free cash I could take from DC pots as you effectively couldn't take tax free cash if you have used up the LTA.

We are still under that regime.

Under the new regime, the government stated that tax free cash would be limited to the current level, but the LTA is abolished.

It hasn't been abolished yet.  The LTA charge was set to zero but all the mechanisms are still in place and being followed.

OK thanks Dunstoh but do we know whether this will still be the case when the new legislation comes and the LTA is removed from law completely?  They would still have to keep a kind of "fake" LTA calculation to do that I guess, because when I take a DB pension without PCLS, I am not taking any tax free cash.

It is a good question. I took a DB pension about 18 months ago, without taking any lump sum/tax free cash. As usual an LTA % was calculated. Does this mean I can still take up to £268,275 tax free cash from my DC pots, or will it be restricted to a lower figure? Assuming
1) 25% of my DC pots is larger than that figure ( it isn't at the moment but might be at some point)
2) We are talking about post April 2024
3) LTA is not revived by a new Govt.

I suspect there is no current answer to this question. 

Pat38493

Albermarle said:

Pat38493 said:

dunstonh said:

Does anyone know whether it's been clarified whether putting a DB pension into payment will limit the amount of tax free cash you can take from DC pensions later on?

It will.   The LTA is still being recorded and that information is what is used currently.

If I understand correctly, under the old regime, if I put in a DB pension into payment (even without taking a lump sum), it would trigger the corresponding % of the LTA to be used.  This would then effectively limit the amount of future tax free cash I could take from DC pots as you effectively couldn't take tax free cash if you have used up the LTA.

We are still under that regime.

Under the new regime, the government stated that tax free cash would be limited to the current level, but the LTA is abolished.

It hasn't been abolished yet.  The LTA charge was set to zero but all the mechanisms are still in place and being followed.

OK thanks Dunstoh but do we know whether this will still be the case when the new legislation comes and the LTA is removed from law completely?  They would still have to keep a kind of "fake" LTA calculation to do that I guess, because when I take a DB pension without PCLS, I am not taking any tax free cash.

It is a good question. I took a DB pension about 18 months ago, without taking any lump sum/tax free cash. As usual an LTA % was calculated. Does this mean I can still take up to £268,275 tax free cash from my DC pots, or will it be restricted to a lower figure? Assuming
1) 25% of my DC pots is larger than that figure ( it isn't at the moment but might be at some point)
2) We are talking about post April 2024
3) LTA is not revived by a new Govt.

I suspect there is no current answer to this question. 

Yes - and also it poses the same question the other way around.

Let's say I took my entire LTA amount as DC pensions up to now and I have taken £268275 of tax free cash.

I now decide to put into payment a DB pension worth 30K per year (without any lump sum).  I would then face an LTA tax charge on 600K of DB pensions put into payment.  However, the LTA tax amount was changed to zero in the last budget. Therefore my LTA tax to pay is zero?

Under the current legislation, even right now between April 23 and April 24, is there any means by which HMRC can charge me additional tax on that DB pension, given that I didn't take any "tax free cash" at the time?   Can they go back and charge me tax retrospectively on the tax free cash I already took at that point?  Even if that's the case, how would I declare that on any tax return?

Under this system, you should always take your DB pension last (or am I missing some change that was made in 2023 budget)?

leosayer

The government created a working group to work through the details of the full abolition of the LTA, see link below.

https://www.gov.uk/government/publications/lifetime-allowance-guidance-newsletter-march-2023/lifetime-allowance-guidance-newsletter-march-2023#lifetime-allowance-working-group