LTA Part 2

[taken2often]

A year ago January 20 I did a post about LTA and my 75th birthday in August. Little did I know of the problem I would encounter. At that point I was facing a substantial tax bill when the Test was due. It turned out that due to the virus I had no tax to pay, but a big hole in my fund.
I did not want to sell stock to pay the tax. My natural yield on my fund is 6.35% and I did not wish to damage this. I then put my proposal to two large Providers and got a very strange response. This tax is a charge not really a tax although you have to record it in your self assessment form. That HMRC Pension Services expected to have your pension damaged. Well that started me off.

So I pointed out that at 75 an LTA Test is a moment in time event, as is 5th April or date of death. If a taxable amount was due I wanted to pay to the Provider this sum from outwith the pension fund. They then said that it would have to be added to the fund and a second Test carried so that I would have to pay tax on my tax.This is a complete misunderstanding of the rules. The Finance Act that covers this is very clear. If funds come from within a pension fund to cover the tax element then it would have to be done before the Test and it would be taxed. No problem with that. After the Test it is tax and it is up to me to provide this either from cash within the fund, sell stock, or from funds outwith the pension, to the Provider so that they have the Funds on the due date, every quarter.

The implication was that HMRC expected to see the damaged reduced fund. In fact this turned out to be untrue as HMRC only required your name NI number and how much tax you were paying 25% or 55%. It has taken many months of emails to get HMRC Pension Service to admit that there can only be one Test. They also state that any payment after 75 receives no tax relief, so is of no interest to them. This was all concealed in the usual Civil Service speak. I had asked on numerous occasions a Yes or No answer relating to the Finance Act and they were very reluctant to answer. It took a little pressure to get this final definitive answer. My option has not been offered to their clients and I hope this will change.

[taken2often]

What also turned out to be a bit strange, it was the poor understanding of finance and a process that should fair and in the customers interests. I will be pushing for the following. The week after your 74th you should received a small booklet advising that some thought should go into the coming year.
That you will have to provide to your main provider information relating to any other pensions you may have.
That everyone at age 75 will have a LTA Test. If tax is due, where would they like it to come from. Save the natural yield during the year. Sell stocks and units at the right time or not buy stock, or provide cash from outwith the Pension Fund. This would also give time to transfer or combine pots.

It turned out that on the day my Provider did the test, then did nothing, as there was no tax to pay. Me I expected to get a formal letter stating that the Test had been carried out and that the fund had represented a percentage of my LTA and that I still had the sum of -----of my PCLS still available.

Not a lot to ask for. I had to message them to get the percentage but no mention of the PCLS A very poor service. I suppose technical staff have little appreciation of clients needs.

[DrBunsenHoneydew]

... Me I expected to get a formal letter stating that the Test had been carried out and that the fund had represented a percentage of my LTA and that I still had the sum of -----of my PCLS still available.

Not a lot to ask for. I had to message them to get the percentage but no mention of the PCLS A very poor service. I suppose technical staff have little appreciation of clients needs.

The amount of available PCLS is not fixed though is it, so they couldn't quote it in pounds beyond being a quarter of the remaining percentage of unused LTA, which is variably increasing year on year, when you do already know the percentage. What is it you want them to say that you don't already know?

[taken2often]

Thanks for your reply. I am in fact on a fixed maximum sum for PCLS. This is related to your Protected LTA. I have not used any so I would expect to see confirmation that this sum had not been depleted in any way. Also it cannot grow after you reach your maximum.

[taken2often]

Interesting replying to my own post. I would have thought someone would be facing a &%year LTA Test this year. You still go through it even though you may not be paying any tax. I you are going to pay tax then what I have established may be very important to you. Think I will try a new post.

[scrumpyjack]

Interesting replying to my own post. I would have thought someone would be facing a &%year LTA Test this year. You still go through it even though you may not be paying any tax. I you are going to pay tax then what I have established may be very important to you. Think I will try a new post.

I can't imagine any circumstances in which I would want to pay a tax bill out of already taxed assets when I could pay it out of gross pre tax assets, unless I wanted to preserve the pension fund for my children and was planning to die before reaching 75! Anyway I am one of the fortunate few who don't have to worry about the LTA as I took out enhanced protection in 2006 even though I was nowhere near the limit at that point. In retrospect a very good decision!

[taken2often]

Hi thanks for calling in. I to have protection, locked in at 1.5. If it had not been for the Virus I would probably have to have paid about 40k. My sipp has a natural yield of 6%. I have cash earning nothing. I am 75 not touched the PCLS and will never draw on my Sipp. So yes it will be handed on. Cash paid in tax will cut the IHT, so another 40% saved. Well that's my logic