Question:

Should I consider applying for a transitional tax-free amount certificate (TTFAC) for my client who is over age 75 and looking to take PCLS?

Answer:

In a word, yes. As a general rule, I would suggest that it is always a good idea to consider whether a TTFAC should be applied for before the first Relevant Benefit Crystallisation Event (RBCE) occurs post 6 April 2024. This is because a TTFAC can only be applied for before the first RBCE. For clarity, an RBCE can be any of the following:

• Pension commencement lump sum (PCLS)
• Stand-alone lump sum
• An uncrystallised funds pension lump sum (UFPLS)
• Serious ill-health lump sum
• Any pension lump sum death benefit payment other than:
  • Charity lump sum death benefit
  • Trivial commutation lump sum death benefit
  • Lump sum death benefits paid in respect of pension rights crystallised before 6 April 2024.

The taking of income from an existing drawdown arrangement or becoming entitled to a DB scheme pension are not RBCEs in their own right.

More information on whether a client should consider applying for a TTFAC can be found HERE

There is an additional consideration for clients that reached age 75 before 6 April 2024 and this is due to the fact there is likely to have been Benefit Crystallisation Events that occurred at age 75, such as:

• BCE 5: Defined benefit test at age 75 (uncrystallised rights)
• BCE 5a: Drawdown funds at age 75 (fund value less benefits designated)
• BCE 5B: money purchase funds at age 75 (uncrystallised rights)

If any of these events occurred, they could have used the Lifetime Allowance. However, none of these events will have involved the payment of tax-free lump sums.

Whether a TTFAC will benefit the client will be much dependent on whether the client became entitled to any further lump sum payments after the client reached age 75. If the client did receive a lump sum between reaching age 75 and 5 April 2024, then all the tests at age 75 are included for the availability of Lump Sum Allowance. If they did not receive a lump sum after age 75 and before 5 April 2024, then all the age 75 tests are excluded.

Example A

Abbey had an uncrystallised fund of £900,000 when she reached age 75 on 2 February 2023. Abbey has had no other crystallisation events (no further lump sums) and has no LTA protection. When she reached age 75, her fund value was still £900,000 and BCE 5b determined that she used 83.86% of her Lifetime Allowance. In December 2024, Abbey decided to access some of her tax-free cash. Her fund value was then £1,000,000.

As Abbey as had no lump sums between age 75 and 5 April 2024 her age 75 tests are ignored, this will mean that Abbey will have Lump Sum Allowance (LSA) of £268,275 and Lump Sum & Death Benefit Allowance of £1,073,100 available. Therefore, her maximum PCLS available is £250,000 as this represents 25% of her uncrystallised fund, and is within her available LSA and LSDBA.

Example B

If in the example above Abbey had taken a PCLS payment after age 75 and before 5 April 2024 then the age 75 test on the uncrystallised fund would reduce the available LSA & LSDBA by £224,975 (£1,073,100 x 83.86%) x 25%) In this scenario, Abbey should certainly consider applying for a TTFAC before taking further PCLS benefits.

Finally, just to re-iterate, the TTFAC must be applied for before the first RBCE, so this should be considered for any client accessing pension benefits for the first time after 6 April 2024.

You might also be interested in the following articles:

Should a client apply for a TTFAC?

The LSDBA and death benefits payments

Important information

This article provides information and is only intended to provide an overview of the current law in this area and does not constitute financial advice, tax advice or legal advice, or provide any recommendations. The value of benefits depends on individual circumstances. The minimum age clients can normally access their pension savings is currently 55, and is due to rise to 57 on 6 April 2028, unless they have a lower protected pension age. Different options may have different effects for tax purposes, different implications for pension provision and different impacts on other assets and financial planning.

Issued by Financial Administration Services Limited, authorised and regulated by the Financial Conduct Authority. Fidelity, Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited.

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