LTA clinic with the M&G Wealth technical team: Session 4

21 February 2024

For the final day in their series of articles on the imminent abolition of the Lifetime Allowance (LTA) for Professional Paraplanner, the M&G Wealth Technical Team answer questions they have been receiving from the financial planning community on specific financial planning considerations.

You can find Session 1 HERE>, Session 2 HERE> and Session 3 HERE>. Each leads into the content of the next session so are best read in order.


My client, with no protection, has used 90% of their LTA but has had more than £268,275 tax free cash (TFC) , does he have to use his remaining 10% this tax year?

No, his default LSA will be £26,872.50.

Given the LTA is being abolished, if there are clients in DB schemes who were over the LTA (eg £100k pa) will they receive more cash now as they won’t be taxed?

They will no longer have their income reduced by LTA excess charges. But their tax free cash will be broadly the same as before, i.e. 25% of LTA, now capped at £268,275. Whether they have any more tax free cash will depend on how muLTA they have used and how much tax free cash they actually took previously.

Do you have a view on options for clients who are above the LTA, but with no protection and no specific need to access funds? Should they wait until just before age 75 to access PCLS, or consider just getting PCLS out now and deploy for IHT planning whilst they are relatively young (mid 60s)?

That would be one to base on the client’s wider situation based on the usual factors for advice. Have a read of this:

If a client has £1million in DB and £1million in DC schemes, am I right in assuming that they’re still restricted to the 25% TFC of the current LTA?

For this year the maximum PCLS will be the lower of 25% of the value of benefits crystallising or 25% of the remaining LTA. Next year the maximum PCLS will be the lower of 25% of the value of benefits crystallising, the LSA or the LSDBA.

I’ve a client with £1.3million in a pension with no protections and has taken the £268,275 tax free cash. Can they still use Small Pots ( 3x £10,000 ) and still take TFC from these ? Would this need to be done by April 2024?

Small pots don’t use up (or need LTA) now and post 6 April 2024 small pots won’t use up (or need) the new allowances. So they could get a further £7,500 taxed at 0%.  So, no change basically.

I have a client who took PCLS from a scheme some years ago. It was around 50% of the sum vested. They have an LTA of £1.25million and unvested funds over this. How will the 2024-25 PCLS be calculated?

Sounds like they have had a scheme specific tax free cash payment. The default deduction will be LTA% used x £1.25m x 25%.

A client is due to take his DB pension with TFC of £349,000 and a pension of £57,000. LTA utilisation will be 138.87%, no LTA protection. Is it best to take it now or after April 2024?

The tax free amount will be the same, £268,275. The scheme pension will be over the LTA this year but with a 0% charge and next year does not get tested. If that is a fixed amount of tax free cash that can’t be manipulated then this year the excess would be an unauthorised payment with associated taxation but next year possibly a pension commencement excess lump sum which looks to be marginal rate tax.  You need to find out from the pension scheme what the PCLS position is. It may be better having a standalone tax charge that doesn’t affect any other area of the tax system than having the excess added to income and taxed accordingly.

If that is maximum commutation amounts you are looking at, then we presume you would just ask for the £268,275 (assuming normal advice considerations dictate that is suitable) which you can get pre and post April.

I’ve a client about to take SSPTTFC over 25% but is nowhere near £268,275. Is there a benefit to waiting?

In terms of the clients PCLS entitlement if they have LTA protection over £1,073,100 then waiting would give them more PCLS. They will only use 25% of the amount crystallising off of their LSA either side of April. If they wait until after April, they could get £268,275 from other schemes and still be able to take their SSPTFC as that is not tested against the LSA or LSDBA.

Please can you cover the situation for clients with pension over the LTA, e.g. £1.5million in a SIPP, who have no protection. Could they be better off acting now rather than post April 2024?

There may be a benefit if the client is likely to want their death benefits to go into a trust and death is likely to be before age 75. Aside from that, it will be normal planning considerations – and don’t let the tax tail wag the retirement outcomes dog.

Les wrote an article on crystallising pre April HERE.


What’s anticipated date for finalised legislation?

2nd reading is due 21st February so the bill gaining Royal Assent is imminent. But, there are various regulations to follow and the Act will have regulation making powers wider than normal up to Aril 2026.  We expect these powers just to be used to tweak things to make the new system work as opposed to anything material.

Professional Paraplanner