Lisa Webster: A chance for extra tax-free cash?

The latest Finance Bill released in November gave us the first look at the transitional rules for those that have taken some pension benefits under the current regime but also have untouched funds that will be accessed after 6 April. When it comes to the new Lump Sum Allowance (LSA), in most cases this will be reduced by 25% of the Lifetime Allowance (LTA) previously used. So if someone has used 60% of their LTA their LSA will be reduced by 25% x 60% x £1,073,100. So £268,275 minus £160,965 gives an LSA of £107,310. However, there is an exception. The draft legislation introduces a “transitional tax-free amount certificate” or TTAC. The basic concept is that if someone has taken less than 25% tax free cash, then the LSA will be reduced by the amount actually taken instead. For example, if the client who had used 60% of their LTA had actually done so by taking a scheme pension, and they hadn’t taken any PCLS in association with it, then the TTAC would show they still had the full £268,275 LSA available. This is something that has certainly caught the attention of many advisers we have spoken to and could potentially benefit a number of clients. But just because a client has taken less than 25% PCLS from a scheme in the past, doesn’t automatically mean they will be able to take more under the new regime. The first point to make is that the rules around how to apply for the TTAC are not particularly clear, and more guidance from HMRC is required. This is something we have raised in our response to the Finance Bill. It states that “complete evidence” of the lump sum available is required, without defining what this is. Once we know what is required it may well be the case that it is easier to get cash from some schemes than others. There will be cases where schemes no longer have records of the lump sums taken, especially for pre A-day lump sums, or where schemes have since wound up. The rules also state that the client can present the evidence to any scheme that they are (or were) a member of, and that scheme should provide the certificate, which can in turn be used with other schemes. This seems odd – it would be more appropriate for the scheme that had paid less than 25% to provide the certificate rather than one that the client had not yet accessed. The last point to consider is that a TTAC may lead to an increased LSA but this will only lead to higher PCLS if the pension being accessed is of a sufficient size to support it. For instance, if 60% LTA has been used but no PCLS taken, LSA will be £268,275 rather than reduced to £107,310. However, if uncrystallised funds of only £400,000 are held, then PCLS would be restricted by the permitted maximum of 1/3 of the amount used to provide an income, i.e. £300,000 income gives a maximum £100,000 PCLS. In this scenario having extra LSA is irrelevant. Lisa Webster is senior technical consultant at AJ Bell. She is an economics graduate with over 15 years’ experience in financial services. Prior to joining AJ Bell in May 2014 she spent nine years working in senior technical and consultancy roles at a major SIPP and SSAS provider. She is part of the AJ Bell Technical Team. Email: This email address is being protected from spambots. You need JavaScript enabled to view it. Twitter: @lisasippster

Lisa Webster: A chance for extra tax-free cash?

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