6. HMRC Rules - Lifetime Allowance Flashcards
What have been the lifetime allowance limits
2006/7 - £1.5M increased over years to 2012 - £1.8M 12/13 & 13/14 - £1.5M 14/15 & 15/16 - £1.25M 16/17 & 17/18 - £1M 18/19 onwards - CPI
What are BCE’s (Benefit Crystallisation Events)
1 - Designation of funds to DRAWDOWN PENSION
2 - Entitlement to Scheme Pension
3 - Excessive increase to scheme pension in payment (payment above permitted margin)
4 - Purchase of lifetime annuity using MPP funds
5 - DB test at 75 of uncrystallised benefits
5A - Test at 75 for drawdown pension (member with earlier designated drawdown pension)
5B - Test at 75 for uncrystallised MPP funds
5C - Unused uncrystallised funds designated for drawdown following member’s death
5D - Unused uncrystallised funds used to purchase lifetime annuity following member’s death
6 - Entitlement to Lump Sum
7 - Lump Sum Death Benefits
8 - Transfer to o/s QROPS
9 - Prescribed Event
What are the BCE VALUATION BASES
1 - The market value of the fund
2 - Scheme pension x 20
3 - Excess above margin x 20
4 - MV of fund used to purchase annuity
5 - Scheme pension x 20 Plus PCLS
5A - Market value of fund, less market value of designated drawdown pension at outset
5B - market value of remaining unused funds
5C - member dies < 75 and funds are designated to dependant / nominee pension (before end of 2 year window)
5D - member dies <75 - mrket value of assets used to purchase annuity
6 - Value of lump sum (e.g. PCLS, UFPLS, serious ill health lump sum, LTA excess sum
7 - The amount of the lump sum death benefit
8 - value of transfer
9 - the amount prescribed in the regulations
What are the Lifetime Allowance Charges (LAC)?
55% if taken as lumps sum
25% if excess is taken as income
LTA iro Pension credits on divorce
What are they for pre 04/06 pensions?
What are they for post-04/06 pensions?
Pre-Apr 2006:
LTA increased by:
IAPC - Credit inflated by RPI to 2006, DIVIDED by
SLA = LTA in 2006/07, i.e. £1.5M
Post-April 2006:
Only for pensions in payment, credit factor is
Credit rights DIVIDED by LTA at time
(for pre-2012 credits, apply factor to £1.8M)
What is Normal Minimum Pension Age
When can someone take pension before NMPA
NMPA is 55 (since 2010)
Rising to 57 in 2028 (when retirement age goes up to 67 from 66)
Will always be 10 years before state pension age thereafter
Can retire on grounds of ill-health (where cannot or will not be able to do their normal occupation & ha stopped that occupation)
These are HMRC rules - scheme may stipulate ANY occupation
OR
if someone could take before NMPA pre-2006:
May take at 50 (if scheme rules allowed pre Dec’03)
All benefits taken in full (phased retirement not allowable)
Small Pots Payments What are they? How many can be taken? Are they tested against LTA? How are the taxed?
Individual pension pots < £10k Can take up to 3 non-occupational pots Can take unlimited occupation pots Not tested against lifetime allowance Uncrystallised - 25% tax-free , remainder PAYE From crystallised funds, 100% PAYE
Trivial Commutation Lump Sum:
What are they?
What rules surround when they can be taken?
What is the tax treatment
DB scheme where total benefits valued at < £30k
Must have reached minimum pension age
Must have some remaining LTA
Must completed within 12 month period
P{ayment must extinguish rights to defined benefits under the scheme
Must start to commute benefits within 3 months of nominated date
Period starts when first payment is made
Can only have one commutation period in their lifetime
Tax treatment is same as for small pots
