The lifetime allowance was abolished on 5 April 2024. However, there are instead new rules limiting the tax-free lump sum payments from pensions both in lifetime and on death.

As part of the changes HMRC provided the option to apply for a Transitional Tax-Free Amount Certificate to have lump sums previously taken assessed under the new rules, as a monetary amount, rather than under the Lifetime Allowance standard transitional calculations. The standard transitional calculation based the deemed amount used on 25% of the Lifetime allowance used at previous crystallisations.

Who can apply?

The legislation and HMRC guidance states that anyone can apply provided they have an LTA % used. This will be everyone who experienced a BCE from 6^th April 2006 to 5^th April 2024.

This rules-out those who only took benefits before 6^th April 2006 because those benefits won’t have been tested against the Lifetime Allowance.

It also rules out those who haven’t crystallised any benefits too, but there is nothing to test so there could be no benefit anyway.

Even if the member has used 100% of their LTA then they can apply if it is beneficial for them.

Who can you rule out quickly?

1. Anyone who has no uncrystallised funds on 6^th April 2024 and does not plan to make any further contributions.
2. Anyone that only took benefits from when the LTA was £1,073,100 ie from 6 April 2020 onwards (or after the date of their protection certificate) and took their full entitlement to tax free cash from those crystallisations each time. This is because the standard calculations will mirror what has happened and as such no benefit will be gained from applying for a certificate. (if 100% of LTA see next section)
3. Anyone that took benefits when the LTA was higher than £1,073,100 ie between 6 April 2006 and 5 April 2016 and took their full entitlement to tax free cash from those crystallisations each time. Again, the standard calculation will mirror this.
4. Anyone where their current LSA and LSDBA give plenty of headroom against the availability of future benefits. This could mean that their total benefits are such that they will never be able to use the full remaining LSA or LSDBA based on the standard transitional calculations. This is of course a judgement call based on their age, fund value and plans in the future.

Exceptions to the rule

The one exception to all of these rules is that if the client has used 100% of the LTA then they won’t be entitled to any LSA or LSDBA without a certificate.

So even if there is no benefit for them to apply with regards to tax free cash, it will reinstate some of their LSDBA for the purposes of paying tax free lump sums on death or in serious ill health.  However, as above, if they have no remaining uncrystallised funds at 6/4/2024 and don’t plan to make further contributions, there is still no benefit in the TTFAC.

Who may benefit from applying for a TTFAC?

The key potential beneficiaries are those who have or are likely to have funds with a total value in excess of £1,073,100 or their own protected higher lifetime allowance and any of the following.

• Took benefits between 6 April 2006 and 5 April 2024 without their full tax-free cash entitlement.
• Took benefits during tax years 2016/17 – 2019/20, ie when the lifetime allowance was less than £1,073,100, without any lifetime allowance protection.
• Reached age 75 before 6 April 2024 with uncrystallised funds and have not since taken their tax-free cash entitlement
• Transferred funds to QROPS
• Took benefits that contained a disqualifying pension credit
• Took benefits that contained a GMP which restricted their cash to less than 25%

This is an example of one of the recent news bulletins that was posted on our Techlink website.  Signing up to Techlink will give you access to original articles, like this, on a daily basis.  Techlink also provides you with a comprehensive (and searchable) library of information, daily bulletins on developments of relevance to the industry, multimedia learning and professional development tools. Techlink can also be your ‘gateway’ for accessing consultancy through our ‘ASK’ service which enables you to receive responses to your technical questions from our highly trained technical consultants.

You can sign up for a free 30 day trial of Techlink at anytime.  For more information go to www.techlink.co.uk.