Chapter 2 - HMRC Rules for Crystallisation Events

Question 1

The Lifetime Allowance (LTA)

Answer 1

12/13 and 13/14 = £1.5m
14/15 and 15/16 = £1.25m
16/17 and 17/18 = £1m
Increase by CPI thereafter.

Question 2

Benefit Crystallisation Events (BCEs)

Answer 2

Scheme pension
Lifetime Annuity
Drawdown pension
UFPLS

Tested against LTA post age 75. Called UNUSED FUNDS.
13 BCEs in total. Each valued differently.

If in excess of LTA, benefits are taxed:-
55% if taken as lump sum, 25% if taken as income.
If liability arises on death, recipient is responsible for paying charge.

Max entitlement to PCLS is 25% of LTA.. therefore, if only proportion of LTA left, PCLS calc is 25% of that, which may be less than 25% of MP fund.
LTA charge is deducted from funds after PCLS taken and remainder into drawdown.

Question 3

Benefits pre A Day

Answer 3

Valuation only starts on first BCE post A Day. % is established then used for all future calls for BCEs.

25:1 valuation factor used for pre A Day income benefits.
E.G. Income is £10000, so value is £250000.

Value for drawdown pre A Day, depends on form of drawdown.
Complex but effectively results in 120% of basis amount x 25.

Max amounts are basis amounts x 150%.
Calcs are 80% x (25 x max amount)

Question 4

Higher LTA

Answer 4

Not UK resident.
Transferred in from overseas.
Sharing order re divorce benefits.
Pre A Day which has been reg for Primary Protection.
If reg for Fixed Protection 2012 re reduction to £1.5m
If reg for Fixed Protection 2014 or Ind Prot re red to £1.25m
If reg for Fixed Protection 2016 or Ind Prot re red to £1m

Question 5

Minimum Pension Age

Answer 5

55. Before 55 on ill health grounds.
    Or if member has a right as at 5/4/06.

If trivial commutation or small pots paid, this is NOT tested against LTA.

Transitional Protection for Occ Schemes
Rules of scheme may allow benefits at age 50.
Provision was in rules before 10/12/03.
All benefits taken in full.

Minimum age increasing. 2028 will be age 57. SPA will be 67 by then.
So MPA always 10 years earlier than SPA.

Question 6

Lump Sums - PCLS

Answer 6

PCLS is Max is lower of 25% of capital value of benefits or 25% of available portion of remaining LTA

Question 7

Lump Sums - UFPLS

Answer 7

Using unused/uncrystallised funds only from MP and not designating funds to drawdown. Since April 15. This is trigger event for MPAA.

Question 8

UFPLS & LTA

Answer 8

If UFPLS is > LTA, choices…
Reduce UFPLS to within limit.
Take intended amount and suffer LTA tax charge at 55%
Take UFPLS to available LTA and trf rest to drawdown, then be taxed at only 25% LTA tax charge.

If over 75 and no LTA left, full amount taken taxed under PAYE.

Question 9

Small Pots

Answer 9

Less than £10000. Max from non-occ schemes is 3.
No limit on unconnected occ schemes.
Not tested against LTA.
Tax is as usual, 25%, remainder at PAYE.

Question 10

Trivial Commutation

Answer 10

Occ scheme only, total of ALL pension rights less than £30000, can pay cash lump sum.
Only 1 commutation period in lifetime.
If more than one scheme, can commute one but not other.
Tax is 25% tax free and 75% at PAYE. Example says full is PAYE at 20%..check..page 19.

Question 11

Serious health commutation

Answer 11

Must have LTA remaining.
Under 75… payment tax free up to LTA. Excess has LTA lump sum charge at 55%.
Over 75, ill health lump sum charge of 45%.

Question 12

Member Benefits - Income

Answer 12

Options are secured pension or unsecured/drawdown

Question 13

Scheme Pension

Answer 13

DB is income from scheme pension
MP.. lifetime annuity option given first then scheme pension.
Does not trigger MPAA
If received prior to 75, tested against LTA.

Question 14

Lifetime Annuity

Answer 14

Trigger for MPAA. Flexible annuities can vary.
Pre 75, tested against LTA.
If over 75 and annuity is from previously crystallised funds, no LTA test.

Question 15

Drawdown

Capped and Flexi-access

Answer 15

Capped, only if other funds designated pre 6/4/15.
Limit is 150% of basis amount.
No new capped now.

Flexi access, replaced flexible drawdown. No limit on amount than can be drawn.

Question 16

Capped

Answer 16

Can convert capped to flexi-access.

can happen if more than 150% taken. Trigger MPAA. Cannot be changed back to capped.

Question 17

Flexi Access (FAD)

Answer 17

Builds up funds outside of estate.
Funds in AND taking income triggers MPAA.
If PCLS taken and no income, does not trigger MPAA.
Income taxed at marginal rate.
All taxed at Month 1 basis (so at 1/12th of allowances), therefore too much tax. Must be reclaimed.

Question 18

Death Benefits

Answer 18

HMRC Dependants
Widow/widower or civil partner
Child under 23
Child who is deemed dependent due to illness or impairment 
Partner who is proven to be dependent 

Nominee - person nominated by member to receive benefits

Successor - person nominated to continue to receive benefits

NB..check scheme rules

Two year window….. starts from when administrator informed of death..benefits must be designated within this time.

Question 19

Death benefits from uncrystallised funds

Answer 19

Pre 75, paid within 2 year window
If with LTA, paid free of tax.
Excess taxed at 55%

Pre 75 paid after 2 year window
Subject to tax at recipients marginal rate, no LTA test.

Post 75
Subject to take at recipients marginal rate, no LTA test.

Question 20

DB schemes death benefit

Answer 20

Under 75
In service, no tax if within 2 year window
Tested against LTA, excess at 55% tax
Outside 2 year window, tax at recipients marginal rate

Over 75
Tax at recipients marginal rate, no LTA test.

Question 21

Annuity protection and pension protection lump sum death benefits

Answer 21

only payable if scheme included a protection lump sum death benefit
Pre 75
Not subject to tax, no LTA test

Post 75
Tax at recipients marginal rate, no LTA test

Question 22

Death benefits from Drawdowns

Answer 22

Capped pre 75
Not taxed if within 2 year window
If outside window, tax at recipients marginal rate
No LTA test

Post 75
Taxed at recipients marginal rate
No LTA test

Flexi-Access pre 75
Not taxed if within 2 year window
Outside window, taxed at recipients marginal
No LTA test

Post 75
Tax at recipients marginal
No LTA test

Question 23

Trivial Commutation Lump Sum Death Benefits

Answer 23

Survivor commutes survivors pension
member dies within guaranteed period and recipient wants to commute
Max is £30000 per scheme
No age or time limit

Commuting a guarantee if previously crystallised.
Multiply income by 25 to get valuation. If below £30000, can take under trivial commutations

Question 24

Charity Death benefits

Answer 24

To members nominated charity and used for charitable purposes.

Question 25

Death Benefits as continuing income

Answer 25

Scheme pension - taxed as recipients. No LTA text

Lifetime annuity pre 75 - Free of tax. No LTA test

Lifetime annuity post 75 - recipients income. No LTA test.

Can be paid out of scheme to dependant bust MUST be dependant

Question 26

Survivors Lifetime Annuity

Answer 26

Pre 75 - tax free, no LTA test

Post 75 - beneficiaries tax rate. No LTA test.

If member dies pre 75 with uncrystallised funds, free of tax as long as within 2 year window. Tested against LTA of member.
Excess taxed at 55%
After 2 year window, taxed at beneficiaries rate.

Post 75, beneficiaries rate. No LTA test.

Question 27

Dependants Capped Drawdown

Dependant’s, Nominee’s or Successor’s

Answer 27

Can convert to flexi.
If set up and income taken before 6/4/25, income taxed as beneficiary.

If income taken after 6/4/15 and member dies pre 75, no tax or LTA test.
As above but post 75, taxed as beneficiary, no LTA test.