Pension tax query

MCwW1986

Dear all, 

Please can you help me with my query.  It appears that a number of independent financial planners/tax advisers I have approached are unsure how to answer this query.  Your guidance would be very much appreciated.

• Mr is deceased and passed on his pension arrangements to his wife.
• Mr passed away 20th December 2020 he was not older than 75 years old.
• Mrs received 50% of his DB final salary pension scheme and all of his DC scheme.
• She took the DC scheme as a lump sum on the 29th May 2024.  This amount was £1,129,559.80.
• She continues to receive monthly DB scheme payments of c.£2,300 per month.
• The DB scheme was tested against lifetime allowance on the 31st October 2010.  The amount vested was £1,009,142.  
• When Mr retired he did receive a lump sum of £237,438.31.
• Mr had Individual Protection 2014 in place of £1,454,224.45
• Mrs has always been and will continue to be an additional rate taxpayer.

The question:

- Will Mrs have any tax liability’s a result of the above?

DRS1

Well the low hanging fruit is the £2300 DB pension - taxable as income.
The DC lump sum sounds tax free but there is something about 2 years nagging away in my mind.
Mr was obviously very prescient if he foresaw the abolition of the LTA.

DRS1

It seems I should have had something else nagging as well - the Lump Sum and Death Benefit Allowance which I guess is Mr's 2014 protection figure but I am not sure how you measure the DB pension for that calculation.
I'll shut up now,

HappyHarry

MCwW1986 said:

Dear all, 

Please can you help me with my query.  It appears that a number of independent financial planners/tax advisers I have approached are unsure how to answer this query.  Your guidance would be very much appreciated.

• Mr is deceased and passed on his pension arrangements to his wife.
• Mr passed away 20th December 2020 he was not older than 75 years old.
• Mrs received 50% of his DB final salary pension scheme and all of his DC scheme.
• She took the DC scheme as a lump sum on the 29th May 2024.  This amount was £1,129,559.80.
• She continues to receive monthly DB scheme payments of c.£2,300 per month.
• The DB scheme was tested against lifetime allowance on the 31st October 2010.  The amount vested was £1,009,142.  
• When Mr retired he did receive a lump sum of £237,438.31.
• Mr had Individual Protection 2014 in place of £1,454,224.45
• Mrs has always been and will continue to be an additional rate taxpayer.

The question:

- Will Mrs have any tax liability’s a result of the above?

No there is no tax liability.

There is  no lifetime allowance anymore, and the relevant figure is the Lump Sum Death Benefit Allowance, usually £1,073,100 but due to IP2014 in this case is £1,425,224.

Mr has used £237,438 of this when he took a lump sum from his DB pension at retirement in 2010, when the lifetime allowance was £1.8m. Therefore Mr has used 13.19% of his LSDBA and has 86.81%remaining.

86.81% of £1,425,224 is £1,237,254. The DC lump sum taken was £1,129,559 so there is an excess of the LSDBA of £107,695 still remaining.

N.b. - If this was formal advice I would be asking someone to double check this - be warned!