Chapter 2 & 3 Flashcards
Which scheme operate net pay and how does this work
Silly name as taken from gross pay
Usually DB/Occ, Not GPP,
Employee conts taken from employee gross pay BEFORE tax deducted saves income tax at marginal rate.
Does matter what tax band as same method.
Which scheme operate Relief at Source and how does this work
Source - Stake
DB, Personal, Stakeholder, GPP
Provider claims basic rate tax relief
Which scheme operate Relief on Making a Claim and how does this work
RAC
All tax relief as self assessment
What is adjusted net income
Total income from all sources less certain deductions i.e. personal pension cont
When is self employed tax relief paid
1 - on a/c 31st Jan current year i.e. 2022 - 50% of 2021/22 liability
2. 31st July following end of tax year i.e. 2022 - 50% of 2021/22 liability
3. 31st Jan 2023 following end of tax year (for 2021/22) - difference between tax liability & two payments made. ALSO tax relief for current tax year received.
What are the requirements for recycling PCLS
If ALL apply
PCLS & any other from 12 months exceeds £7500
Significant increase - more than 30% of expected
Cumulative sum excess 30% of PCLS
Would cause entire PCLS to be unauthorised
What is the AA tax charge
if over PIP (tax year) then taxed at marginal rate tax i.e. basic, higher or additional
How is DC input calculated
conts paid by the member or someone else before 75
NOT conts by member after 75 and any investment income/return
How do you calculate the DB input at opening & closing of PIP
Open values times by 16 and revalue by CPI
Closing times by 16 NO CPI
How is threshold income calculated
£200k - Threshold before adjusting (TA)
Take gross taxable income (inc Divi’s)
MINUS gross member pension conts
PLUS salary exchange
MINUS lump sum death benefits.
If over then do Adjusted
How is adjusted income calculated?
Take gross taxable income (inc Divi’s)
PLUS employer pension conts
MINUS lump sum death benefits.
If over £240k then reduce £1 for every £2 over, if less then no taper
How does carry forward work within own business
Up to £40k per tax year - not salary
Would only get tax relief up to % of salary
What happens when the MPAA is triggered
Applies from following day of trigger and for ALL other tax years
What is not a trigger for MPAA
If designate for drawdown & only take PCLS
UFPLS IS a Trigger
How do you calculate an excess of LTA
There is a limit of 25% of available LTA TFC, minus this (if applicable) then work out any excess.
If cry then no TFC
How is a scheme pension valued for LTA
Income x20
How is a drawdown at age 75 valued for LTA
market value at 75 minus market value when designated
How is a Transfer overseas value valued for LTA
Use the transfer value and IGNORE any preserved pension
What is not a BCE
If tsfr from PP to ISPP
or if take benefits from RAC
If a member has previously drawn benefits after A-day how are these valued for BCE
Calculate percentage of LTA for previous BCE, ROUND down, PCLS gets added seperately
Sophie’s capped drawdown pension commenced in 2005 and is still a capped drawdown pension when she crystallises further benefits in 2022/23. For lifetime allowance purposes, her pension will be valued as the:
25 x 80% of max annual amount at date of BCE
When may an individual be entitled to higher LTA
if not UK resident
Tsfr from overseas
Pre 06/04/2006 pension credit/share
After 06/04/2006 pension credit already in payment (started on/after 06/04/2006)
Primary Protection
Fixed 2012/2014/2016
NOT ENHANCED protection - as not higher LTA - instead based on value
From 2028 what will the Normal Retirement Age change to (Not state pension age)
Due to change from 55 to 57
What are the requirements if a client has a protected retirement age
Scheme must be taken in full
Reduced LTA - 2.5% by every COMPLETE year taken before NRA
When must PCLS be paid
Between 6 months before and 12 months after entitled to pension
How are small pots taxed
No LTA test for LTA
If unc then 25% TFC, 75% taxable
If cry then all under PAYE
Which schemes can be taken as triviality
DB and in payment in house DC scheme pension
How is an ill health commutation taxed
Pre 75 tax free up to LTA - 55% on excess
Post 75 all taxable as PAYE
When is the MPAA triggered for secured scheme members
If less than 11 other members (including dependants) on/after 06/04/2015
Who can have a scheme pension upon the members death
Dependant only, not nominee
What is the 2 year window
when benefits designated to income/lump sum
date admin notified or could reasonably be expected to know about death
What is the tax treatment of a DC death benefit lump sum - uncry or unused
If cry then funds unused
Before 75 (in 2 year window) - Tax free within LTA, excess 55% - There will be LTA test
After 75 - taxable on bene as PAYE (marginal rate). NO LTA TEST
Trustee/personal rep - 45% tax charge
What is the tax treatment of a DB death benefit lump sum
Maybe multiple of salary including DIS (size of fund is key factor on DIS tax)
Before 75 (in 2 year window) - Tax-free within LTA, excess 55% - LTA test (BCE7)
After 75 - taxable on bene as PAYE (marginal rate). NO LTA TEST
Trustee/personal rep - 45% tax charge
What is the tax treatment of FAD upon death - can be member, dep, nom or successor death
Before 75 (in 2 year window) - Tax-free, NO LTA test
After 75 - taxable on bene as PAYE (marginal rate). NO LTA TEST
Trustee/personal rep - 45% tax charge
How is a survivors annuity taxed on death - paid to dep or nom
Before 75 (in 2 year window) - Tax free, NO LTA test
After 75 - taxable on bene as PAYE (marginal rate). NO LTA TEST
Trustee/personal rep - 45% tax charge
How is a survivors annuity taxed on death of dep & nom
Before 75 (in 2 year window) - Tax free within LTA, excess 55% if lump sum/25% if income - LTA test (BCE5D)
After 75 - taxable on bene as PAYE (marginal rate). NO LTA TEST
What the options for a dependant of a capped drawdown if they want income
only FAD, no capped dependant income
How is a member/dep/nom/successor FAD taxed on death
If uncy then tax free within LTA, excess 55% if lump sum/25% if income - LTA test (BCE5C)
What is the primary protection value for benefits already in payment on A day
25:1 and no PCLS taken into account
How do you calculate primary protection factor
Value - 1.5m/1.5m = Y (don’t need to change to percent, keep as 0.xx)
After 2012 then underpin of 1.8m - this will be kept even in current tax year
1.8m + (1.8 x Y) = Total LTA
CAN still Accure
Stops you having individual
How does enhanced protection work
Not higher LTA instead based on value, locks in pre-a day benefit value - regardless of value
CANNOT Accure
How does fixed protection work
2012 - protected until 1.8m, over LTA then 55% tax charge
2014 - protected until 1.5m
2016 protected until 1.25m, no deadline to apply
No new pensions except transfer from existing pension
Cannot hold primary or enhanced protection
How does individual protection work
2014 - if value over 1.25 then 1.50 max protected
2016 - if value over 1m then 1.25m max protected - can still apply
CANNOT have if have primary
When may primary protection be recalculated
upon divorce with pension share as could take value under 1.5m - only way to lose primary
How do you calculate primary PCLS
PCLS x 1.8/1.5 = answer
How can you keep additional TFC upon tsfr without protection
if a bulk transfer or wind up
How are pension investments taxed
No income tax or CGT
Trading income is taxable
What are the unauthorised payments charges & who pays these?
Unauthorised charge - 40% on member if they are alive
Surcharge - over 25% of value of members rights - additional 15% charge
Scheme sanction charge - 40% but would minus unauth charge if paid
Dergistration charge - 40% on scheme admin
What would happen to a member if they live abroad with no double taxation agreement
They would be taxed under PAYE & within country of residence
What happens if a member living aboad exceeds the LTA when carrying out recognised transfer
then 25% before funds transfer
How long can a member be temporarily non resident
Pre 06/04/2017 - 5 tax years
After 06/04/2017 - 10 tax years
What conditions must apply if an uncrystallised funds pension lump sum [UFPLS] is to be taken after the member reaches the age of 75?
It can only be taken from funds that were not crystallised before age 75 and the member must have some of their lifetime allowance remaining.
Certain members of occ schemes can take benefits at 50 as long as contractual right was in rules before which date
10th Dec 2003
