Evasion.
As i understand it, you have to declare in divorce proceedings that you have irreconcilable differences and that the marriage is irretrievable (or something similar). To knowingly mislead is perjury. To do so for tax purposes is fraud.

I do sympathise with the conundrum, and the wider point about being taxed as a unit when it's convenient, and as an individual when convenient.
Eg one spouse working and the other not: sorry you can't use your PA (OK there's a little amount you can transfer, but the "one spouse working" model is hugely disadvantageous).
The child benefit clawback is another area of huge disadvantage.

it would be very helpful to just get rid of the LTA entirely. The current doggerel mess is a complete shambles conceptually and practically.
The NHS is driving this as an issue but it's a real mess for lots of people.

One of the issues about taking the CETV for a DB pension is that it can considerably worsen your position in respect of the LTA eg a £2M CETV was probably in exchange for an annual pension of say £65K , which would have contributed only £1.3 Million to LTA .
So your friend has largely brought the situation on himself and now is trying to evade his tax liability through deliberate fraud .
The key word is legally and even if you could say it is a grey area , most UK citizens would feel uncomfortable, with anything on this scale that was not 100% clearly legal.

In my eyes this would be tax avoidance - and I'm fairly sure the hmrc would consider it as that too if they ever got wind of it.

As per https://www.gov.uk/guidance/tax-avoidance-an-introduction

Tax avoidance involves bending the rules of the tax system to gain a tax advantage that Parliament never intended.

It often involves contrived, artificial transactions that serve little or no purpose other than to produce this advantage. It involves operating within the letter, but not the spirit, of the law.

Lying on court documentation that the marriage has "broken down irretrievably" would also open them to perjury charges if/when found out.

There's also the possibility that the wife who suddenly gets a million quid + a split of all the other matrimonial assets decides that she's not so sure that she wants to get back together again

I am sure tactical divorces have already quietly happened for some people with severe tax optimisation concerns (either from a multi-million scale of problem of retrospectively being hit for 25% of a lot) - or aggressive attitude to tax minimisation.

Fundamentally there is nothing impossible or illegal about splitting up and a subsequent reconciliation. It is a thing that happens because people - the grass is greener - and then it isn't. The tax man has to accept the IHT swings and Pension Tax roundabouts of genuine divorce where Pension debits "move" half the pension to the ex-spouse. If a few people marry again then they now both get to use their LTA. A sideshow edge case that won't get fixed. The whole personal LTA concept is broken anyway for couples retiring with asymmetric saving from parenting and the level has been cut too far. Poison and such small portions.

As others have said a non-genuine divorce could be viewed as evasion or fraud - but how could you tell or prove that in practice. Easier no fault divorce being "on the way" as we speak. What we actually need instead of all this nonsense - LTA, MPAA, AA, Protections and gaming thereof- is a stable incentive for pension savings (say a flat rate income relief for all @ 30% +/- 5 and fewer constraints on the timing (self employment) or amounts of saving. "Stability" requires political consensus not to screw around with it constantly. Which will not be forthcoming in these politically polarised times.

Pensions rules are full of edge cases and unintended consequences as with cutting the LTA to the point that 3%/1m LTA = 30k - still a very good but hardly oligarch pension being the "upper" limit before the penalty ramp begins. Still at society level this is a problem for practically nobody - the ONS data on how much people actually have in DC funds makes for grim reading.

I personally wouldn't do it (I have no need to anyway) but I wouldn't particularly criticise someone who did. If the treasury gets to weasel around incompetently creating retrospective tax traps, then you get to work up to the limit of the law at the time you transact. If they didn't think it all through properly. Too bad. That is their incentive right there to think it through better.

Now for the larger group in the wealth tier down who are "at LTA risk" from growth for the age 75 BCE test - during the 20 years 55-75 from investment growth, currency depreciation, inflation > CPI etc. This is something I have been looking into as a family with an asymmetric DC pot situation.

There is a simpler solution than divorce. Crystallise (in stages or at the outset understanding rules on pots, dependents, IHT). Draw enough every year to fill your lower tax bands paying your taxes and aim to keep the cash number around or below the 25% penalty level at 75.
Perhaps even dial your risk down a bit if you are generating more than enough income (or have the high risk assets in the ISA and the lower risk ones in the SIPP so you take the gains where the penalty is not applied.. All these are legal, ethical and rational choices to the incentives offered to simply not pay the 25% extra such as by taking more risk than needed in the pension rather than elsewhere or failing to draw the income regularly against annual tax allowances and basic rate band.

Or you can ignore the whole thing and hope it goes away and is replaced by different nonsense before you get there. But as some say - hope is not a strategy.

https://www.ft.com/content/4b3e6db0-e57a-11e7-8b99-0191e45377ec

The thing that's been making the news recently regarding doctors is the £40,000 yearly limit being tapered for those earning more than £110K/£150K and the resultant tax bill for having gone over that limit, not the LTA (though I don't disagree that either the yearly limit, or the LTA, and possibly both, need to go, or at least increased.)

This isn't the first time divorce has been suggested as a solution to the LTA problem on this forum.

Is it possible? Of course.

Is it fraud? Yes

Is it immoral? IMO - Yes.

Some things are more important than money. Divorce, even if intended only as tax-avoidance, has psychological and emotional impacts. The law of unintended consequences applies.

I would view this idea through the same prism as an open marriage. In practice the outcomes may be very different from those theorised.

I semi-seriously considered this. As my wife is 7 years younger than me with a much smaller pot and no DB pensions we are facing 15 years (roughly) of me paying tax and her being significantly under her personal tax allowance if she withdraws at a sustainable rate.

We settled on her contributing about 60% of her salary to her current DC pension to address the imbalance as she is working a couple more years.

It will still be imbalanced with me paying tax and her still being a few £k below personal allowance but it will be better than it would have been. If we'd known 20 years ago what we know now the situation would be much better.

Slightly off on a tangent but similar.

Over 30 years ago when i was a pensions officer at the then DHSS i handled a Retirement Pension claim from a woman who had divorced her husband at 59 1/2 years of age, claimed a full pension on his NI record (she had a small graduated pension no cat A entitlement) and then remarried him at 60 and a few months. Pretty sure they were around the same age. She kept the full Retirement Pension.....

Perfectly sensible and legal. My guess is it made them several thousand pound before up to the time he retired and subsequently.

Nope. As above, it's illegal under the divorce laws as they stood then, as they transparently committed perjury to get the divorce through the courts. The fact that you couldn't be bothered to escalate it and your superiors couldn't be bothered to prosecute it is neither here nor there. People get away with fraud all the time, it doesn't stop it being fraud.

Getting away with perjury is not the fundamental problem of a tactical divorce. The fundamental problem is that you risk losing 50% of your entire pension fund, and 50% of all other assets, for the sake of a 25% tax bill on the excess only over the LTA. Because your ex, now a considerably more eligible prospect than when they married you originally, might decide not to go through with the reconciliation, and instead use their new independently wealthy status to get themselves an upgrade.

To make the fraud ironclad against an anti-avoidance challenge, you have to remain apart at least a few years to make the reconciliation indistinguishable from genuine. (And going to these lengths is necessary if you're trying to avoid a tax bill of hundreds of thousands, in contrast to the nickel-and-dime benefit fraud that Swanny waved through.)

This significantly increases the probability that your newly eligible ex will not want to go through with the planned reconciliation. Assuming of course you're not in love with each other. Which you're not, because if you love each other then you wouldn't consider remaining apart for several years to reduce your tax bill.

If you're considering a half-baked scheme like this and you think your ex won't be tempted to use their seven-figure independently wealthy status to find an upgrade, you're dramatically overestimating your own value on the marriage market.

Just a thought, would buying a place in Portugal and taking your pension there get around the tax thing?

So they transferred out of a DB scheme and as a result ended up with a massive LTA problem? Were the LTA issues explained in detail by the IFA who advised on the transfer? We've seen examples here of IFAs recommending DB transfers without even consdering or accounting for the LTA issues.

I'd be considering a complaint against the IFA unless all this was fully understood and accounted for

No, as the double tax treaty doesn't exempt the pension from the Lifetime Allowance. This might be an opportunity to get around a large chunk of income tax, but it's quite a big step to decide to move away from the UK for 5+ years for tax purposes!

Aside from the moral and legal aspect but if they were to divorce and then one died presumably there would be an impact on the spouses pension concept also as those rights would no longer exist. I know with a £1m pot each their lifestyles presumably wouldn't be hindered much anyway but

No problem there (just lots of problems elsewhere). It's now a DC pension so you can make a new Expression of Wish after the divorce, naming your ex 100%.

There is no "spousal exemption" for pension death benefits as there is with Inheritance Tax - there is no difference in tax treatment whether you nominate your wife, your kids or your cleaner.

Divorce doesn't invalidate an expression of wish, because an expression of wish has no legal validity in the first place. The trustees have full discretion and an expression of wish is just a suggestion. However, if a nomination to one's ex-wife is dated before the divorce, the trustees are likely to assume it no longer reflected your wishes, especially if there are other potential beneficiaries such as children. So a new expression of wish dated after the divorce would be essential.

Even with a post-divorce nomination to your ex, it is still possible that the trustees would override your expression of wish and give the pension fund to your children or other relatives if they made an application to the trustees. Rather than to your ex who is not dependent on you and probably living in the Algarve with a fancy man called Pedro by now anyway.

The big disadvantage is not pension death benefits but everything else. If you died in the middle of a tactical divorce you would likely have a very large and unnecessary IHT bill due to the loss of the spousal exemption.

On the plus side, as long as you remember to re-do your Will after divorce, your wishes are likely to be followed unless someone dependent on you can clear the high and expensive bar of a challenge under the Inheritance (Provision for Family and Dependents) Act. (If you don't bother re-doing your Will post-divorce, your ex is excluded - it is still legally valid but your ex is treated as if they'd died.)

If it was a still a DB pension you are correct that the spouse's pension would be lost.

How much did the advisor pocket for this advice?

Gilt prices have been driven to such low levels for good reason. Nothing absurd in the pricing. Time may tell if this is indeed "lucky".

Odds on the OP returning?

Money does corrupt.

People with a lot of money often seem disposed to do whatever they can to keep it, even if it means breaking tax laws. The ironic thing is that even after paying the tax they are usually comfortable and far better off than most people.

I live in a US state that has an inheritance tax that starts at $1M and there are ways to hide the money, some of which are dubious and others which are just onerous as it needs companies and or trusts to be set up.

In the end it's best just to be sensible, keep your nose clean wrt taxes and tell the truth. A poorer honest marriage is far more important that a wealthier dishonesty separation.

Thanks everyone for your views so far, sorry if I ought to have been replying in line.

I’ve been away today but managed to speak to my friend this afternoon and they too pass their thanks as there’s lots here they had a view on and some they hadn’t thought of.

On fraud, they hadn’t considered this. Perhaps because they’re Edinburgh based so covered by what they thought was a difference in Scottish divorce laws. They noted the seriousness of fraud.

They weren’t totally persuaded by the evasion argument (because of the above) as a result but I think the volume of views offering that as an opinion is making them think more seriously that way.

They hadn’t thought of all of the alternatives put forward, and we’re grateful for ideas.

There were truly surprised at the lack of moral judgement ... it reaffirmed their faith in people but made a wider societal judgement that “those with a pension problem, listen well and share thoughts”. They said their family (small or no pensions) trotted our the standard ‘you’ve got to be earning it to be paying it’ line to them and weren’t much help.

On the issue of unintended consequences ... put so well by a few folk, they recognised it and thought that’s a personal call and what sat behind their thoughts to do this was who would benefit most from the saving ... with that amount of a pit, it was their kids so they didn’t think that an issue but, again, the strength of opinion they found helpful.

The advisor for the change charged them around £8k to do the TVAS and set up the SIPP.

On gilts, They didn’t know why this was good (that was my recollection as I moved mine at much the same time). From my recollection at the time, from one CETV calculation to the next (99 days apart), my own valuation increased by almost £500k due to gilt values and, when I look at their cost over the last ten years, mine were valued at the lowest recorded cost. My friend chose to ‘twist’ about two weeks after I did so they would have been close to rock bottom (as it was then, who knows what the future brings - good point).

My reading is that the jury Is out, but more inputs are very welcome.

Thank you all ... TD

I'm often amazed at people's lack of moral deamons. If it feels wrong then it usually is. I'm sure it's possible for legal arguments to be made that it's ok for a happily married couple to divorce and shade the truth in the proceedings and reduce their tax bill. But my rectitude is worth far more than money and I'm surprised how inexpensively some value theirs.

@bostonerimus Moral deamons are exercised in many ways in the UK in my own experience. Ask many self employed People if they choose to pay income tax or use the tax efficiency of CGT on dividends and you’ll see it ... I see few who pay what an employed person does ... generally as they pillory the big tech companies for their shameless sidestepping of tax too. I know there’s differences in other areas but it’s really not a level playing field out there.

Of course, everyone pays what they’re due to pay within the UK’s tax jurisdiction, so no one is doing anything wrong - no ?

Personal fibre, and the strength of the moral compass will direct the steps that folk take.

I may live in different circles to you, but I know many who will side step taxes soon as look at you, some even brag about how little they pay - in some cases bragging to have paid zero in tax for seven consecutive years, whilst living the high life with booze fueled weekends and foreign holidays as far afield as Australia .... whilst saying the ‘rich’ should pay more.

Don’t get me wrong, I pay close to £90k a year in income tax and the only tax rebate I receive is for gift aid donations. It rankles me to witness such selfishness and hypocrisy, but truly, the world we live in is not quite as philanthropic as we’d love to believe at times. TD