Section 5 - LSA & DBLSA Flashcards
What is the Lump sum annual allowance
LSA was introduced due to the abolition of the Lump sum allowance
Standard lump sum is £268,275 (25% of the old LTA £1,073,100), as calculated at 6th April 2024
Capital taken out over the LTA is taxed at the persons income rate
If someone has enhanced protection then what is their LSA limited
If enhanced protection held then starting amount is £375,000
If someone holds primary protection what is their LSA
• If primary protection (PP) held then the amount is £375,000
• If primary protection held with lump sum protection, then the amount is dependent on the amount stated on the certificate
If someone holds fixed protection then what is their LSA
If Fixed Protection 2012 held then LSA is £450,000
If Fixed Protection 2014 held then LSA is £375,000
IF Fixed Protection 2016 held then LSA is £312,000
If someone holds individual protection 2014 or 2016 then what is their LSA
If Individual Protection 2014 or Individual Protection 2016 held then LSA is 25% of protected LTA
what are the consequences of someone taking the benefit of their pension before their normal minimum retirement date
LSA reduced by 2.5% per year where benefit taken below normal minimum pension age
What is the Lump Sum Death Benefits Allowance
It’s the amount tax free given to the beneficiary’s from their remaining pension if someone were to die.
It’s up to the old LTA of £1,073,100
• On death pre-75 payments are tested against the LSDBA.
• Benefits within the LSDBA tax-free, excess taxed as the recipient’s income
• Post-75, no LSDBA test applied, but taxed totally as income
• Does not apply to income-based benefits which are tax-free on death pre-75 without limit
• And taxed as income post-75.
What is the Lump Sum Death Benefits Allowance
It’s the amount tax free given to the beneficiary’s from their remaining pension if someone were to die.
It’s up to the old LTA of £1,073,100
• On death pre-75 payments are tested against the LSDBA.
• Benefits within the LSDBA tax-free, excess taxed as the recipient’s income
• Post-75, no LSDBA test applied, but taxed totally as income
• Does not apply to income-based benefits which are tax-free on death pre-75 without limit
• And taxed as income post-75.
What are Relevant Benefit Crystallisation events
Any event tested against the LSA and/or LSDBA is known as a relevant benefit crystallisation event (RBCE).
• Where multiple relevant lump sums paid on the same day, the member may decide the deemed order of payment
• Where multiple relevant lump sum death benefits paid on the same day, the member’s personal representatives may decide the deemed order of payment
Name the Relevant Benefit Crystallisation events
Tested against LSA
• Pension commencement lump sum (PCLS)
• Stand-alone lump sum (SALS)
• Uncrystallised funds pension lump sum (UFPLS)
• Serious ill health lump sum (SIHLS)
Tested against LSDBA
• Defined benefits lump sum death benefit
• Uncrystallised funds lump sum death benefit
• Annuity protection lump sum death benefit
• Pension protection lump sum death benefit
• Drawdown/flexi-access drawdown lump sum death benefit
• Dependents/nominees/successors flexi-access drawdown lump sum death benefit
Name the non Relevant Benefit Crystallisation events
Tested against LSA
• Small pots payments
• Trivial commutation lump sums
• Winding up lump sums
Tested against LSDBA
• Charity lump sum death benefit
• Trivial commutation lump sum death benefit
• Lump sum payments made on death after reaching age 75
• Lump sum payments made prior to reaching age 75 which are not paid within two years of the administrator becoming aware (or the date they ought reasonably to have become aware) of the member’s death
• Lump sum benefits from funds which crystallised prior to 6 April 2024
What are the three methods of calculations LSA
Standard transitional calculation
Transitional tax free amount basis
Pre-commencement pensions basis
The standard transitional calculation
calculation is:
£268,275 - (25% x previously used% of lifetime allowance on 5 April 2024 x
£1,073,100)
Where lifetime allowance protection is held then the relevant protected amounts are substituted into the equation.
• Calculation is based on % of LTA previously used
• Not based on actual amount taken
• This assumes 25% tax-free cash taken at each prior BCE
• This may not have actually been the case
Example:
Where the member had previously used 50% of their lifetime allowance, assuming no protection, then the calculation would be:
2
£268,275 - (25% x 50% x £1,073,100)
= £268,275 - £134,137.50
= £134,137.50
Transitional tax-free amount basis
• Can be applied for where 25% tax-free cash has not been taken at a prior BCE
• Certificate issued known as transitional tax-free amount certificate (TTFAC)
• Ensures members are not unfairly disadvantaged by being assumed to have taken tax-free cash when they haven’t
• Must be applied for before first post-5 April 2024 RBCE
• Provides protection for members who have taken less than 25% of LTA before 6 April 2024
• Calculation based on actual tax-free cash amounts previously paid
• Calculation known as transitional tax-free amount basis
• Can apply to any provider with which member has had benefits
• However, evidence of total benefits taken may be required
• Irrevocable once issued
In what circumstances would a client benefit from the Transitional tax-free amount basis
• No PCLS due to poor commutation rate
• PCLS restricted by GMP element
• DB scheme with defined PCLS rates e.g. 3/80ths
• DC scheme taken with no PCLS e.g. good GAR
• Used 100% of LTA (assumed to have no LSA or LSDBA left)
• Taken benefits under previous lower LTA
• Reached 75 and had a deemed BCE with no tax-free cash actually taken
• DB scheme increases over prescribed limits (previous BCE3)
• Client crystallised a disqualifying pension credit
• Transfer to a QROPS prior to 6 April 2024
• Serious ill-health lump sum taken
