For professional advisers only

From 6 April 2024, new legislation allows individuals (or if deceased, their personal representatives) to apply for a Transitional Tax-Free Amount Certificate (TTFAC) if they can evidence how much tax-free cash has been withdrawn from their pensions prior to 6 April 2024.

It could potentially allow clients to take more tax-free cash than would otherwise be available using HMRC’s standard transitional calculations. The standard transitional calculations are:

1. Lump Sum Allowance (LSA) – This is an amount equal to 25% of the individuals previously used lifetime allowance (LTA).
2. Lump Sum and Death Benefit Allowance (LSDBA) – This is an amount equal to the appropriate percentage used, which translates as either:

• 100% if the individual was entitled to a serious ill health lump sum and they were under 75 at time of payment, OR the individual dies before 6 April 2024 aged under 75 and before that date, a beneficiary is paid a lump sum death benefit.
• If neither in scenario (a) applies, the percentage will be 25% of the individual’s previously used LTA.

Example

As of 5 April 2024, an individual with no protection has used up 50% of their LTA which under the standard transitional calculations converts to £536,550 (50% X £1,073,100).

This translates as they have utilised £134,137.50 of their LSA and their LSDBA.

If a client has utilised 100% of their LTA, they will not have either allowance available under this standard transitional calculation.

Who might benefit from applying?

Whilst every client’s circumstances are unique and we can’t advise you on who should apply, here are some things to consider:

1. Those over 75 who have uncrystallised funds which were tested against the LTA at age 75.
2. Those who have used all their LTA.
3. Those who have transferred to a Qualifying Recognised Overseas Pension Scheme (QROPS) before 6 April 2024.
4. Those who have accessed their pension benefits at a time when the standard LTA was below £1,073,100.
5. Those who didn’t commute their DB pension or only took a guaranteed annuity from their DC pension.
6. Those who had pensions in payment before 6 April 2006 that were later tested against their LTA at a crystallisation event.
7. Those who waived their right to PCLS at a crystallisation event.

Remember if a client applies for a TTFAC and this confirms they are due a lower amount of LSA and/or LSDBA than the standard transitional calculation, they cannot reverse.

What will we accept as evidence?

We are still waiting for HMRC to release their guidance on what is deemed as acceptable evidence of what tax-free payments a client has received in their lifetime. While we await this guidance, it’s advised that if you’re thinking about applying for a TTFAC from 6 April 2024, then pull together BCE statements, bank statements confirming receipt of payments, and/or applications for those payments.

How do I apply for a TTFAC?

Download our TTFAC form here. It’s important to remember that if your client accesses further tax-free cash after 6 April 2024 you will not be able to apply for a TTFAC.

Please remember that the value of investments and the income from them can fall as well as rise, and you may get back less than you invest. Tax treatment depends on individual circumstances and may be subject to change in the future.