PCLS in 2023/2024 where LTA exceeds 1,070,000

davec1001

I have crystallised benefits of 99.49% of my LTA, however I have only taken PCLS from some of these crystallisation events.  £469,825.40 of my LTA (44.53%) was in respect of a drawing a defined benefit pension

I recently crystallised a further £230,000 pot, and hoped to receive a further £57,500 PCLS.   My SIPP manager restricted the PCLS to £1,806.02, which seems to be calculated based on 25% of my remaining LTA.

I guess I hoped that the new proposal to abolish LTA, meant that there would be a limit on total PCLS of 268,250.00 regardless of how much LTA was used

Is there a way I can ask HMRC to clarify/confirm the calculation by my SIPP Manager?

David

FIREDreamer

Same here. I have no LTA left but took no PCLS from one DB so potentially I have £21k (25% LTA minus PCLS actually taken) of PCLS available if I can get my uncrystallised pot up to £84k or more.

So can I take £21k PCLS after April 6th?

Hargreaves Lansdown think the answer is no (currently).

jamesd

The manager was correct.

The usual lifetime allowance calculation rules apply this year even though there is no excess charge. This means that your previous crystallizations where you took no tax free lump sum still count and block you from getting more.

I expect this blocking effect to cease next tax year because you will be below the new Lump Sum Allowance. https://www.mandg.com/pru/adviser/en-gb/insights-events/insights-library/lifetime-allowance-abolition-from-2024/pension-commencement-lump-sums-pcls but with more detail at https://www.mandg.com/pru/adviser/en-gb/insights-events/insights-library/lifetime-allowance-abolition-from-2024/the-new-allowances . It appears that only the actual PCLS amounts taken will be deducted from your new Lump Sum Allowance. Note the reference to "or have occurred".

In addition this year the tax free portion of a small pot withdrawal isn't checked against the lifetime allowance or the new Lump Sum Allowance so is available to you this year.

Don't be surprised at confusion, disagreement or me being found to be wrong during the first six months as the laws get passed and understanding of what they mean improves.

Pat38493

jamesd said:

The manager was correct.

The usual lifetime allowance calculation rules apply this year even though there is no excess charge. This means that your previous crystallizations where you took no tax free lump sum still count and block you from getting more.

I expect this blocking effect to cease next tax year.

In the last set of guidelines and legislation that was discussed here, there was a provision that provided you have the correct proof that you did not take a PCLS with your DB pension, you will be able to get some kind of certificate (I can’t remember exactly what they called it) to get around this.

jamesd

Yes, undoubtedly some form of proof will be needed, whether it's DB or DC.

shortseller09

jamesd said:

In addition this year the tax free portion of a small pot withdrawal isn't checked against the lifetime allowance or the new Lump summ allowance so is available to you this year.

Are you implying that the treatment of small pots will change in the new tax year?

davec1001

Wow!   Perfect responses.   Appreciate the answers

davec1001

Pat38493 said:

In the last set of guidelines and legislation that was discussed here, there was a provision that provided you have the correct proof that you did not take a PCLS with your DB pension, you will be able to get some kind of certificate (I can’t remember exactly what they called it) to get around this.

I think it is a Transitional tax-free amount certificate, taken from the second link aboce

davec1001

This is HORRIBLE What a mess!

jamesd

shortseller09 said:

jamesd said:

In addition this year the tax free portion of a small pot withdrawal isn't checked against the lifetime allowance or the new Lump summ allowance so is available to you this year.

Are you implying that the treatment of small pots will change in the new tax year?

No. It's just a way to get some tax free amount out this tax year with the Lifetime Allowance still limiting it otherwise.

The new rules explicitly exclude the 25% tax free from a small pot from counting towards the Lump Sum Allowance.

jamesd

davec1001 said:

This is HORRIBLE What a mess!

Excellent! You clearly understand it correctly.

Just think of all of the arcane rule "fun" it'll be if Labour delivers us another set of rules and transitional arrangements!

At least 2073 is the likely end for NSP transitional arrangement questions, with a 122 year old potentially taking us 57 years from 2016 and leaving some additional state pension to be inherited by a new state pension person. For a deathbed marriage and the eventual recipient aged 18 at marriage the final inherited new state pension payment could be in 2177. Or later.

The last recipient of a pension from the American Civil War died in 2020 aged only 90, 155 years after it ended in 1865. NSP inheritance of ASP could beat that.