Is there now a limit?

gravlax

The LTA has been scrapped and Labour say they won't reintroduce it. But was there also some other change along the lines that the amount that can be taken tax free (in simple laymans terms it used to be up to 25% of your whole 'pot' as a one off lump sum, or 25% of each withdrawal from your pot over time) but there was no cap - if your pot was £2m then up to £0.5m could be extracted tax free. Is that still the case now?

ColdIron

No. It has been limited to £268,275, 25% of the LTA as was. This has not been scrapped

NoMore

With the scrapping of the LTA, a Tax free Lump sum allowance was introduced, this is £268275. this is exactly the same amount as the previous max tax free cash under the LTA rules.

So yes there is a cap on amount of tax free cash available and currently its the same as the old LTA amount.

hugheskevi

But was there also some other change along the lines that the amount that can be taken tax free 

The LTA was replaced by 3 new limits:

• Lump Sum Allowance (limits tax free lump sums to a combined total of £268,275)
• Lump Sum and Death Benefits Allowance
• Overseas Transfers Allowance

(in simple laymans terms it used to be up to 25% of your whole 'pot' as a one off lump sum, or 25% of each withdrawal from your pot over time) but there was no cap - if your pot was £2m then up to £0.5m could be extracted tax free. Is that still the case now?

There was a cap, 25% of the LTA.

gravlax

Thank you all. So the max tax free is capped at £268275 which is 25% of the old LTA. So in terms getting the optimum maximum tax free and tax free as a proportion of pot size, then the optimum pot size is still the old LTA £1.07m. Over that the only advantage to adding more into a pension over this amount is if there are any tax advantages to the contributions going in, or inheritance planning. But in terms of tax savings when withdrawing later, nothing gained. Is that a fair assessment?

gm0

The above discussion ignores protection certificates already held under the LTA regimen.  There was a standard LTA and this could be overlaid by a personal one which applied with one of the many types of protection IP20xx and FP20xx and others from prior fiddling.  If you had applied when the rules were changed. And had the cert.  For many of these it preserved a higher LTA but you had to stop saving.  No more tax relief.  Effectively MPAA went to 0

https://techzone.abrdn.com/public/pensions/Tech-guide-tax-free-cash

Yes - there was no more tax free cash above your LTA (standard or personal). Method did not matter. FAD or UFPLS under the old system once above LTA.  All taxable to in year SA income tax.  Same now.  Once LSA TFC is exhausted.  The drawdown is straight income.

Additionally the age 75 - 25% penalty "LTA charge" on crystallised growth of pension in drawdown net of income and untouched pensions went first to 0%.  And then was abolished entirely when LTA became LSA.  That tax disadvantage has gone.

DC pension IHT exemption has to be in the crosshairs for a tax raid.  But today - the "spend pension last" rule still applies to tax planning for estates with a mix of financial assets, pension, housing, other. 

IHT reform being another thorny item which again - has to be in the cross hairs.  Exempt - for now

BreakingGlass

I have a question regarding the new (since 6 Apr 24) Lump Sum and Death Benefits Allowance that was discussed above.

I an the executor of a relative's Will and have just been alerted to this new LS&DBA by the provider of the Deceased's workplace pension.  The pension provider is paying out approx £16k of death benefit, but pointed out that it is my responsibility to add up the benefits that have been paid out by all of the deceased's pension arrangements, and check if they have exceeded the current allowance of £1,073,100.

The deceased was aged just over 50, and in work (hence the workplace pension) but also had a large private pension (SIPP).

My question is whether the following count against the LS&DBA:

• Death in Service pay-out of 4 times salary from the deceased's employer (DIS was an employee benefit, not linked to pension)
• The value of the Private Pension that has now been inherited by his wife (tax-free as he was under 75).

If  the above are included then it is likely that the LS&DBA will be exceeded, but I am unsure how to declare the amounts.

I just called HMRC to ask the above questions, and spent 40 mins on hold.  The lady that I eventually spoke to had not heard of the 'Lump Sum and Death Benefits Allowance', and nor had her supervisor with whom she checked.   I did point out that I can read about it on the gov.uk HMRC website, but they weren't convinced!  They suggested that I write in and ask the question.  I don't really want to wait several months for an answer, hence thought that I would raise the question here.

I'd be grateful for any advice!

xylophone

• Death in Service pay-out of 4 times salary from the deceased's employer (DIS was an employee benefit, not linked to pension)

• The value of the Private Pension that has now been inherited by his wife (tax-free as he was under 75).

See
https://techzone.abrdn.com/public/pensions/LSDBA-tech-guide

Which lump sums count towards the LSDBA?

BreakingGlass

xylophone said:

• Death in Service pay-out of 4 times salary from the deceased's employer (DIS was an employee benefit, not linked to pension)

• The value of the Private Pension that has now been inherited by his wife (tax-free as he was under 75).

See
https://techzone.abrdn.com/public/pensions/LSDBA-tech-guide

Which lump sums count towards the LSDBA?

Thanks for the reply.  I had already seen that link, but still can't work out whether DIS counts towards the LSDBA.   To be honest I am confused by the terminology.

Are you saying that DIS doesn't count because it is not linked to (or part of) a pension? 

Albermarle

I just called HMRC to ask the above questions, and spent 40 mins on hold.  The lady that I eventually spoke to had not heard of the 'Lump Sum and Death Benefits Allowance', and nor had her supervisor with whom she checked.   I did point out that I can read about it on the gov.uk HMRC website, but they weren't convinced!  They suggested that I write in and ask the question.  I don't really want to wait several months for an answer, hence thought that I would raise the question here.

Probably a good call, some posters on here are much better informed about HMRC pension rules, than HMRC call centre people.