No Tax Free Sum. Was it ever available?

AllPaws4

Thanks for all your comments which definitely give us some avenues to explore. 

dunstonh

The general rule of thumb is that advisers cannot be held responsible for changes in taxation that, with the benefit of hindsight, could have had a different outcome if something else had been done earlier.  (pretty much the same with all professionals in all walks of life).

It is very difficult, as things change and those changes are beyond most people's control.

For example, the Conservatives announced they were abolishing the pension Lifetime Allowance at the Spring Budget on 15 March 2023, when the Chancellor set out plans to remove the LTA charge from April 2023 and abolish the LTA entirely from April 2024.

---Yay.   However, not long after that, it became clear that the LTA was going in name but the lump sum limit was going to be retained.     Then it dribbled out that there would be transitional relief for those that didnt get all their tax fee cash entitlement but used a higher LTA.....

However, HMRC’s detailed guidance on Transitional Tax‑Free Amount Certificates, including references to pre‑2006 pensions, was issued in the Lifetime Allowance guidance newsletter of February 2024 and in the updated Pensions Tax Manual (PTM174100 and cross‑references such as PTM174300) published around March 2024.

If the LTA had been retained, the freeze on the level would have expired, and it could have increased by inflation again.

For much of the period in question, inflation was low. So, indexation would have been low.  Then a short spike sends the indexation of the scheme pension up higher in conjunction with 2023, 24, and 25, which have had above-average returns for medium-risk upwards and within a short period, the values that were not heading towards an LTA breach suddenly go through it.

I recognise that the lifetime allowance was variously £1.5m to £1.8m so the payments were probably well within those figures but as it came down should his pension in payment have been tested ? 

Possibly.  But by the time the adviser was engaged, it was already at £1.25m