01 JUL 2024

Technical Newsletter - July 2024

Issue 6 - July 2024

UK Election 2024!

The big news this month which has been covered elsewhere and we will now wait and see what this means for the pension industry, as the new Government grapples with the big task which is on its hands.

 

The new allowances and the interaction with the old LTA

In our previous newsletter we gave some examples of the new allowances and how these can be reduced where members have used up the old lifetime allowance before 6 April 2024.  Based on feedback received, we thought it would be helpful to further break down the calculation involved when someone crystallised benefits before 6 April 2024.

So, lets go back to the example case of Prisha, which was given in our last newsletter.

In October 2017, she crystallised £500,000. She took a PCLS of £125,000 and the remaining £375,000 was designated to drawdown. Now back in October 2017, the lifetime allowance stood at £1,000,000, having been reduced from £1,250,000, 18 months earlier.

This means that the LTA certificate issued by her pension provider recorded that she had used exactly 50% of her LTA.

Moving forward to April 2024 and the new allowances have been introduced.  She starts with a Lump Sum and Death Benefit Allowance (LSDBA) of £1,073,100 and a Lump Sum Allowance (LSA) of £268,275, like everyone else with a pension who doesn’t have one of the pension protections. However, Prisha’s pension provider must now reduce her allowances by the value of her pre-6 April 2024 lifetime allowance usage. This is where things get a little more complicated.

From 6 April 2024, the Government are only interested in the “non-taxable” benefits payable from people’s pension. This means that going forward for example, when someone decides to go into drawdown, it is only their 25% PCLS payment, which will be deducted from the two allowances detailed above.

Consistent with this approach, it is only the “non-taxable” proportion of any pre 6 April 2024 lifetime allowance usage, which is immediately deducted from the LSDBA and LSA starting allowances.

Going back to Prisha then, although her LTA certificate confirms that she used 50% of the old LTA back in 2017, only 25% of this will have been “non-taxable”, that being her PCLS payment.

Therefore, her allowances will be reduced by one quarter of one half of her previous LTA usage. Doing the maths then, the LSDBA needs to be reduced by 12.5%.

Result: £1,073,100 x 0.5 x 0.25, which is £134,137.50.

This leaves her with a LSDBA allowance of £1,073,100 - £134,137.50 = £938,962.50.

Her starting LSA allowance is basically the old maximum PCLS figure of £268,275, meaning that we simply have to reduce it by £134,137.50, leaving her with £134,137.50.

Moving forward, if she wants to take a tax-free allowance, she cannot have more than £134,137.50 as a pension commencement lump sum.

We hope that this more detailed case study aids in understanding of this complex area of pension legislation.

 

Who needs to apply for a Transitional tax-free allowance certificate (TTFAC)?

Readers may have recall that the new transitional calculations (as detailed above), can in a very small number of cases leave an individual disadvantage in terms of available LSDBA and LSA, if they have not fully used up their 25% PCLS entitlement before April 2024. For us in the SIPP and SSAS world there are several examples when applying for one of a TTFAC will be a good idea. In the past month, HMRC has set-up an on-line tool where individuals can enter their details and it will provide at the end an answer on whether they should apply. The problem is that this tool is not working 100% accurately under some circumstances.

The main example is someone who crystallised benefits when the life-time allowance was only £1,000,000.  So, people who took benefits after 6 April 2016 and before 6 April 2020 and did not have one of the 2016 protections. These individuals will have used up proportionately more of the old lifetime allowance than most and the transitional tax-free allowance will reflect this. In the example of someone who used up 50% of the lifetime allowance, this will be measured against £1,073,100.  However, if they apply for a TTFAC, the actual amount of PCLS paid to them can be deducted from their new LSDA and LSA.

In the international market there are two very key areas when applying for a certificate is really a must. The first is where people have not taken ANY PCLS because of their personal tax position, commonly this will be where they live overseas in a jurisdiction which taxes incoming lump sums.

The second is where someone is moving back a QROPS to the UK and did not crystallise benefits before they transferred their UK pension in the first place. The new calculations will require their allowances to be reduced by 25% of their BCE 8 test. Therefore, to maintain the full LSDBA and LSA they should be entitled to (because they have yet to take a UK PCLS) they should apply for a TTFAC.

The important thing to advise your clients is that these certificates MUST be applied for from the scheme paying the first non-taxable lump sum AFTER 6 April 2024 and your member must have that certificate in their hands before they crystallise under the new tax regime!

 

Changes to the Ardan International dealing process for IFGL Pensions SIPPs

We recently changed the dealing process for all IFGL Pensions SIPP members who hold an investment portfolio within Ardan International with effect from Monday 3 June 2024.

Previously, if you wished to place a trade on the Ardan platform, you sent the IFGL Pensions Dealing Team your completed dealing instruction. Our Dealing Team then risk assessed the request to ensure it satisfied various criteria. Once approved, we let you know by email that you could place the trade(s) on the Ardan platform.

IFGL Pensions has streamlined the process and moved to a more automated way of working. In the new process, you place the trade(s) directly onto the Ardan platform. IFGL pensions will receive an automated notification to risk assess and approve/reject the trade on the platform. If we reject the dealing instruction, we will email you to confirm the rejection.

Please be advised the change took place from Monday 3 June 2024. If you use the old method, IFGL Pensions will reject the dealing instruction and request the trade(s) to be placed on the Ardan platform.

Please note that this change only affects traded placed on the Ardan International platform. Arrangements for all other SIPPs not held on the Ardan platform remain unchanged.

 

New Streamlined process for IFGL SIPPs linked to the Ardan Platform

When the IFGL SIPP was revised last year, we introduced the option of linking the SIPP with Ardan, our sister company through IFGL, who provide an investment platform. One benefit of this arrangement is a lower annual fee.

We have now introduced a streamlined application form which includes both SIPP and platform information and can be found on our website.

 

Annual Allowance - use it or lose it!

One of the key benefits of a SIPP is the ability for investors based in the UK to receive tax relief on their contributions. This makes them very tax-efficient vehicles, especially where the investor is a higher rate of additional rate taxpayer. Once investors move overseas, they lose this UK tax relief benefit and contributions made do not attract relief. However, the relief is not lost immediately.

The rules determining whether someone is a “UK relevant individual” for tax purposes are set out in Section 189 of Finance Act 2004. One of the conditions for being a “relevant UK individual” for a tax year is being resident in the United Kingdom both at some time during the five tax years immediately before that year and when the individual became a member of the pension scheme. Someone in that position can pay up to £3,600 into a UK pension during a tax year and receive tax relief on the contributions.

So, the message if you have clients who have left the UK in recent years and remain in the pension scheme they were in where they left, is that it is very much worth considering topping up that UK pension with a contribution, before the opportunity is lost!

 

 

IMPORTANT NOTE IFGL Pensions cannot accept any responsibility for any action taken or refrained from being taken as a result of this information.