Budget  

What challenges do the new LTA rules pose?

  • Describe some of the challenges with PCLS and LTA
  • Explain what happens with death benefits
  • Identify benefit crystallisation events
CPD
Approx.30min

There will also be some schemes whose rules do not permit flexi-access drawdown. These individuals will only have the option of a lump sum.

Other BCEs 

If you have a client transferring their UK pensions to an overseas pension, there will still be an LTA test on those funds given they are leaving the UK tax environment. The test takes places regardless of the age of the client. 

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There can no longer be an LTA charge on any LTA excess, but the provider will still conduct the test and report the usage to the client, as it would be relevant if the client still has uncrystallised funds in the UK from which they plan on taking a PCLS.

Technically speaking, a client can still take the excess as an LTA excess lump sum, which would now be subject to marginal rate, provided they are age 55 or above, but most clients would presumably transfer the whole fund to the qualifying recognised overseas pension scheme.

Serious ill-health lump sums are also affected by the change in rules. This is where a client has less than a year to live and takes their entire fund as a lump sum.

Previously the whole of the fund would have been paid free of income tax, although an LTA charge would have been paid on any excess over the LTA.

Now, the part of the fund up to LTA is tax-free, and income tax is chargeable on the excess over the LTA. 

Martin Jones is technical manager at AJ Bell

CPD
Approx.30min

Please answer the six multiple choice questions below in order to bank your CPD. Multiple attempts are available until all questions are correctly answered.

  1. In the tax year 2023-24, pension savers who take the excess as an LTA excess lump sum will be subject to their marginal rate of income tax, true or false?

  2. Clients who took benefits in the lead up to the spring Budget and incurred an LTA charge can definitely get it reversed, true or false?

  3. Which of the following is NOT a test for LTA usage?

  4. What happens to death benefits if a client dies after age 75?

  5. Any uncrystallised funds paid out as death benefits if death is before age 75 are free from income tax, true or false?

  6. How will beneficiaries pay income tax?

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You have successfully answered all the questions correctly, well done!

You should now know…

  • Describe some of the challenges with PCLS and LTA
  • Explain what happens with death benefits
  • Identify benefit crystallisation events

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