Crystalise at 0% now or wait for LTA to be completely abolished

[Mark66]

When I retired a few years ago I crystallised up to 100% of the LTA. (I have another £90K uncrystallised in my SIPP.)

Since the announcement in March to abolish the LTA I have wondered if I should crystallise my remaining pension at 0% tax charge this tax year or wait for the LTA to be completely abolished. My thoughts are on how best to protect myself from any potential backdated tax charge from a future government if they reintroduce the LTA.

Initially my thoughts were to wait until 6th April 2024, thinking there may then be no records as there is then nothing to record. But given the new 'tax free limit' (at the old LTA) I guess this will not be the case.

From what I have read Labour has slightly rolled back from their initial 'we will reintroduce the LTA' to saying their policy is 'still being decided'.

I am thinking now, I might as well crystallise my remaining pot under the existing rules, doubting there will be any advantage one way or another. In the mean time I have a slightly larger charge from my SIPP platform (as the un-crystallised part has a separate charge rather than being free under capped charges if I had one pot).

Can anyone think of any reasons to hold off?

[pochisoldi]

The only reason why there's a 0% charge this year is because it wasn't possible to get legislation done in time - they kept the same rules, but eliminated the charge by setting it 0%.

The only difference between this year and next is that legally this year the 25% tax free lump sum is restricted to 25% of the LTA which happens to be £268275.

Next year the lump sum will be restricted to the lower of 25% of the pot, or £268275.

That £268275 limit will remain the same going forward, as part of HM Government's ongoing love affair with fiscal drag.

[scrumpyjack]

A similar question.

I am fully in drawdown now and have had the maximum 25% tax free amount.

My SIPP value substantially exceeds the LTA but I have 'enhanced protection' so the LTA does not apply.

I could pay into my SIPP this month the max gross £3,600 pension contribution in order to get 60% tax relief on it (I will just hit the personal allowance clawback level this year). But that would result in me losing 'enhanced protection'.

I will be 75 at the end of the month so there will be a final LTA test. No longer having protection, presumably I will be assessed for the LTA charge which will then be levied at 0%?

Am I safe whatever Labour might do, or is it really not worth the risk of making this small tax saving contribution and thereby losing enhanced protection?

[TedSwippet]

I could pay into my SIPP this month the max gross £3,600 pension contribution in order to get 60% tax relief on it (I will just hit the personal allowance clawback level this year). But that would result in me losing 'enhanced protection'.

On your last sentence, are you sure? From abrdn:

Enhanced protection
...
Can protection be lost?
From 6 April 2023, enhanced protection normally cannot be lost. The exception to this rule is the unlikely situation where an individual has successfully managed (by concession) to register for enhanced protection after 15 March 2023.

Before 6 April 2023 (and afterwards for the above exception) it was lost if:
- relevant benefit accrual took place (see above) or
- the individual received an impermissible transfer or made a transfer that was not a permitted transfer, or
- a new pension arrangement was started for the individual - although there were a few exceptions (e.g. to accept a permitted transfer).

And from the horse's mouth:

2. Pension commencement lump sum and lifetime allowance protections
As a result of the abolition of the lifetime allowance, the maximum amount most members can take as a pension commencement lump sum will be frozen at £268,275, which is 25% of the current standard lifetime allowance of £1,073,100. However, members with a protected right to a higher pension commencement lump sum on 5 April 2023 will continue to be able to access this right.

All existing rules for calculating a pension commencement lump sum will remain for the 2023 to 2024 tax year.

Members who hold a valid enhanced protection or any valid fixed protections, will be able to accrue new pension benefits, join new arrangements or transfer without losing this protection provided this protection was applied for before 15 March 2023, and a certificate or reference number subsequently issued, from 6 April 2023. They will also keep their entitlement to a higher pension commencement lump sum and will be able to accrue new pension benefits, join new arrangements or transfer without losing this protection.

[scrumpyjack]

Thanks that is helpful. I was worried the legislation might not yet have been enacted and in the event of an early election ...

However it seems it was in this years Finance Act which received Royal Assent in July

[Freshwater]

Can anyone think of any reasons to hold off?

In response to your question, I can't currently see a downside to you fully crystallising your pension pot under current rules. Labour's statement that they would reintroduce the LTA looks like it was a knee jerk reaction to the Chancellors surprise move to abolish it. Now they have had time to reflect, I think they are realising that there are far more effective ways of reducing tax benefits for the well off, but therein lies the risk.

I would have thought that fully crystallising under this year's rules (and 'paying' an LTA charge of 0%) should ensure that, if the LTA is simply reintroduced using all the old rules (BCEs etc), you would not be asked to 'pay it again' at a higher rate. In other words crystallising before the LTA is fully abolished would help you avoid a future LTA charge if it was simply 'turned back on'. However, no one knows what new rules would accompany a reintroduced Labour devised LTA (or LTA replacement) scheme. Which is why I say I can't 'currently' see a downside.

[TUK020]

When I retired a few years ago I crystallised up to 100% of the LTA. (I have another £90K uncrystallised in my SIPP.)

Since the announcement in March to abolish the LTA I have wondered if I should crystallise my remaining pension at 0% tax charge this tax year or wait for the LTA to be completely abolished. My thoughts are on how best to protect myself from any potential backdated tax charge from a future government if they reintroduce the LTA.

Initially my thoughts were to wait until 6th April 2024, thinking there may then be no records as there is then nothing to record. But given the new 'tax free limit' (at the old LTA) I guess this will not be the case.

From what I have read Labour has slightly rolled back from their initial 'we will reintroduce the LTA' to saying their policy is 'still being decided'.

I am thinking now, I might as well crystallise my remaining pot under the existing rules, doubting there will be any advantage one way or another. In the mean time I have a slightly larger charge from my SIPP platform (as the un-crystallised part has a separate charge rather than being free under capped charges if I had one pot).

Can anyone think of any reasons to hold off?

Only if part of your LTA crystallisation is a DB scheme.
I have used 100% of my LTA, but a big chunk of that was taking a DB scheme. I used the max 25% TFLS of my SIPP, but this was a long way short of the £250k+ tax free limit.
I still have extra funds in the SIPP uncrystallised, waiting for April 6th when I can take a further portion as TFLS.

[DrFfybes]

When I retired a few years ago I crystallised up to 100% of the LTA. (I have another £90K uncrystallised in my SIPP.)

Since the announcement in March to abolish the LTA I have wondered if I should crystallise my remaining pension at 0% tax charge this tax year or wait for the LTA to be completely abolished. My thoughts are on how best to protect myself from any potential backdated tax charge from a future government if they reintroduce the LTA.

I doubt even Labour would try and retrospectively tax you on income you took under previous tax rules - that would be like saying "We're reducing the 40% limit to £40k of earnings backdated to 2019, so if you earnt more than that in the last 5 years you owe us money." or "We're increasing IHT to 50% for anyone who died in the last 2 years"

Paul

[TUK020]

When I retired a few years ago I crystallised up to 100% of the LTA. (I have another £90K uncrystallised in my SIPP.)

Since the announcement in March to abolish the LTA I have wondered if I should crystallise my remaining pension at 0% tax charge this tax year or wait for the LTA to be completely abolished. My thoughts are on how best to protect myself from any potential backdated tax charge from a future government if they reintroduce the LTA.

I doubt even Labour would try and retrospectively tax you on income you took under previous tax rules - that would be like saying "We're reducing the 40% limit to £40k of earnings backdated to 2019, so if you earnt more than that in the last 5 years you owe us money." or "We're increasing IHT to 50% for anyone who died in the last 2 years"

Paul

Don't give them ideas

[Steveam]

I crystallised most of my fund and took the maximum PCLS some years ago (I had Enhanced Protection 2014) - there was a small uncrystallised pot which has hung around. Today I crystallised this small pot as a tidying-up exercise. I was able to do everything on the AJ Bell website without difficulty. (Although I did phone them to check something and the guy on the phone was very clear and helpful).

Best wishes, Steve