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HMRC internal manual

# Protection from the lifetime allowance charge: lifetime allowance enhancement factors: how to apply lifetime allowance enhancement factors at a BCE

 Glossary PTM000001

Where an individual becomes entitled to a lifetime allowance enhancement factor, their level of lifetime allowance is enhanced at every BCE that occurs in relation to that individual from that point on.  How that enhancement is given depends on when the BCE occurred, the form of the lifetime allowance factor and when the event triggering the enhancement factor occurred.

The calculation of the enhanced lifetime allowance will also be affected by fixed protection, fixed protection 2014, fixed protection 2016, individual protection 2014 and individual protection 2016.

## BCEs occurring before 6 April 2012 – all factors

Section 218(4) Finance Act 2004

For BCEs that occurred before 6 April 2012 for all forms of enhancement factor the individual lifetime allowance was calculated using the formula

SLA + (SLA x LAEF)

SLA is the standard lifetime allowance at the date of the BCE.

LAEF is the lifetime enhancement factor (or if the individual has more than one factor the total of their lifetime allowance enhancement factors).

This version of formula for calculating an individual’s lifetime allowance is also referred to on this guidance page as the standard formula.

## Member only has a pre 6 April 2006 divorce factor

Section 218(4) Finance Act 2004

Where the only enhancement factor an individual has is a pre-commencement pension credit factor (see PTM092200) the individual’s lifetime allowance is calculated using the standard formula, i.e. the same formula as for pre-6 April 2012 BCEs.

SLA + (SLA x LAEF)

SLA is the standard lifetime allowance at the date of the BCE

LAEF is the pre-commencement pension credit enhancement factor.

## Member only has enhancement factors relating to post 5 April 2016 events

Section 218(4) Finance Act 2004

For individuals with factors relating solely to events occurring after 5 April 2016 the individual’s lifetime allowance is calculated using the standard formula, i.e. the same formula as for pre-6 April 2012 BCEs.

SLA + (SLA x LAEF)

SLA is the standard lifetime allowance at the date of the BCE

LAEF is the lifetime enhancement factor (or if the individual has more than one factor the total of their lifetime allowance enhancement factors).

## Example of calculating an individuals’ lifetime allowance using the standard formula

Lisa transferred £300,000 into a registered pension scheme from a recognised overseas pension scheme in the 2006-07 tax year and has a recognised overseas pension scheme transfer factor of 0.2.  This was calculated on the basis of a standard lifetime allowance at that time of £1.5 million.

Lisa crystallises £500,000 in 2008-09 (when the standard lifetime allowance is £1.65 million). Lisa’s lifetime allowance at that point is calculated using standard lifetime allowance formula

SLA + (SLA x LAEF)

Lisa’s lifetime allowance is calculated as:

£1.65 million + (£1.65 million x 0.2) = £1.98 million

Lisa has used up 25.25 per cent of her lifetime allowance and 30.30 per cent of the standard lifetime allowance.  Lisa’s scheme administrator gives her a BCE statement showing that the BCE has used up 30.30 per cent of the standard lifetime allaonce.

## Primary protection BCEs after 5 April 2012

Section 218(4), (5B) (5BB) and (5BD) Finance Act 2004

Where an individual has primary protection and has a BCE after 5 April 2012 their individual lifetime allowance is calculated using the formula

£1.8 million + (£1.8 million x LAEF)

LAEF is the individual’s primary protection factor (or if they have other enhancement factors the total of their lifetime allowance enhancement factors).

If the standard lifetime allowance is more than £1.8 million this formula is replaced by the standard formula explained in the section BCEs occurring before 6 April 2012 –all factors.

### Example

On 5 April 2006 Varina had benefits worth £2.25 million under registered pension schemes. Varina applied for primary protection and has a primary protection factor of 0.5, calculated as (£2.25 million - £1.5 million)/£1.5 million.

Varina also has some pension rights under overseas pension schemes that have not benefited from UK tax relief. In July 2009 (when the standard lifetime allowance is £1.75 million) Varina transfers £87,500 from a recognised overseas pension scheme into a registered pension scheme. Varina is eligible for another enhanced lifetime allowance factor due to this transfer. Varina receives a lifetime allowance protection certificate showing a factor of 0.05 for this transfer.

Following the transfer the total of Varina’s lifetime allowance factors is 0.55.

For any BCE occurring before 6 April 2012 Varina’s personal lifetime allowance is calculated using the standard formula.

For any BCE occurring after 5 April 2012 in any tax year in which the standard lifetime allowance is not more than £1.8 million Varina’s personal lifetime allowance is calculated using the formula

£1.8 million + (£1.8 million x LAEF)

£1.8 million + (£1.8 million x 0.55) = £2,790,000

In 2012-13 when the standard lifetime allowance is £1.5 million Varina transfers £225,000 from a recognised overseas pension scheme in to a registered pension scheme. Varina receives an enhanced lifetime allowance factor of 0.15 for this transfer.

Varina’s total lifetime allowance enhancement factors are now 0.70.

Whilst the standard lifetime allowance is not more than £1.8 million Varina’s personal lifetime allowance is now

£1.8 million + (£1.8 million x 0.70) = £3,060,000

## Other enhancement factors relating to pre 6 April 2012 events {#}

Section 218(4), (5A), (5BB) and (5BD) Finance Act 2004

This section applies to BCEs occurring on or after 6 April 2012 where the individual does not have primary protection but has one or more of the following factors

• a pension credit factor from a post 5 April 2006 divorce – see PTM095200,
• a non-residence factor – see PTM095310,
• a recognised overseas pension scheme transfer factor – see PTM095410,

relating to a pre-6 April 2012 event.

In these circumstances the individual’s lifetime allowance is calculated using the formula

SLA + (£1.8 million x LAEF)

SLA is the standard lifetime allowance at the date of the BCE

LAEF is the lifetime enhancement factor (or if the individual has more than one factor the total of their lifetime allowance enhancement factors).

If the standard lifetime allowance is more than £1.8 million this formula is replaced by the standard formula explained in the section BCEs occurring before 6 April 2012 – all factors.

### Example

In the section Example of calculating an individuals’ lifetime allowance using the standard formula Lisa has a recognised overseas pension scheme transfer factor of 0.2 and crystallised £500,000 in 2008-09 which used up 30.30 per cent of the standard lifetime allowance.

Lisa crystallises £1 million form another scheme in 2013-14 when the standard lifetime allowance is £1.5 million.  As the BCE occurred after 5 April 2012 and Lisa has an enhancement factor that relates to a pre-6 April 2012 event Lisa’s lifetime allowance is calculated using the formula

SLA + (£1.8 million x LAEF)

Lisa’s personal lifetime allowance is calculated as:

£1.5 million + (£1.8 million x 0.2) = £1.86 million

This equates to 124.67 per cent of the standard lifetime allowance for 2013-14.

This BCE uses up 66.67 per cent of the standard lifetime allowance and the scheme administrator give Lisa a BCE statement telling her she has used up 66.67 per cent of the standard lifetime allowance.

Lisa has now used up 96.97 per cent of the standard lifetime allowance.

Later in a tax year when the standard lifetime allowance is £1.85 million Lisa crystallises £200,000.  As the standard lifetime allowance is now more than £1.8 million Lisa’s lifetime allowance is calculated using the standard formula

SLA + (SLA x LAEF)

Lisa’s personal lifetime allowance at this point is calculated as:

£1.85 million + (£1.85 million x 0.2) = £2.22 million

This equates to 120 per cent of the standard lifetime allowance for the tax year.

The £200,000 BCE has used up 10.81 per cent of the standard lifetime allowance for the tax year.  In total Lisa has now used up 107.78 per cent of the standard lifetime allowance.  As this amount is less than her personal lifetime allowance she is not liable to the lifetime allowance charge although her total BCEs are more than the standard lifetime allowance.

## Other enhancement factors relating to events 6 April 2012 to 5 April 2014 {#}

Section 218(4), (5BA), (5BB) and (5BD) Finance Act 2004

This section applies where the individual does not have primary protection but has one or more of the following factors

• a pension credit factor from a post 5 April 2006 divorce – see PTM095200,
• a non-residence factor – see PTM095310,
• a recognised overseas pension scheme transfer factor – see PTM095410,

and they all relate to (an) event(s) that occurred in the period 6 April 2012 to 5 April 2014.

If the individual has more than one enhancement factor and at least one of them relates to an event that occurred before 6 April 2012 follow the guidance in the section Other enhancement factors relating to pre 6 April 2012 events.

### BCE 6 April 2012 to 5 April 2014

If the BCE occurred in the period 6 April 2012 to 5 April 2014 the individual’s lifetime allowance was calculated using the standard formula

SLA + (SLA x LAEF)

SLA is the standard lifetime allowance at the date of the BCE

LAEF is the lifetime enhancement factor (or if the individual has more than one factor the total of their lifetime allowance enhancement factors).

### BCE after 5 April 2014

If the BCE occurred after 5 April 2014 the individual’s lifetime allowance is calculated using the formula

SLA + (£1.5 million x LAEF)

SLA is the standard lifetime allowance at the date of the BCE

LAEF is the lifetime enhancement factor (or if the individual has more than one factor the total of their lifetime allowance enhancement factors).

If the standard lifetime allowance is more than £1.5 million this formula is replaced by the standard formula explained in the section BCEs occurring before 6 April 2012 – all factors.

### Example

Louise received a pension credit before 6 April 2006 (a pre-commencement pension credit see PTM092200). As Louise’s benefits were not more than £1.5 million on 5 April 2006 she could not apply for primary protection. Instead Louise applied for a lifetime allowance enhancement factor based on her pension credit. Louise has a pre-commencement pension credit factor of 0.24.

In July 2013 when the standard lifetime allowance was £1.5 million Louise transfers £30,000 from a recognised overseas pension scheme into a registered pension scheme. This entitled Louise to a recognised overseas pension scheme transfer factor of 0.02.

Louise now has total enhanced lifetime allowance factors of 0.26.

In September 2013 Louise crystallised £1.55 million which was 103.33 per cent of the standard lifetime allowance.  Louise’s scheme administrator gave her a BCE statement showing Louis had used up 103.33 per cent of the standard lifetime allowance.

At this point Louise’s personal lifetime allowance is calculated using the standard formula of:

SLA + (SLA x LAEF)

This is because Louise has a pre-commencement pension credit factor and a recognised overseas pension scheme transfer factor for an event occurring in the period 6 April 2012 to 5 April 2014 for a BCE that occurred before 6 April 2014.

Louise’s personal lifetime allowance is calculated as

£1.5 million + (£1.5 million x 0.26) = £1.89 million

Although Louise has used up more than 100 per cent of the standard lifetime allowance she has not used up her personal lifetime allowance so is not liable to the lifetime allowance charge on any excess over the standard lifetime allowance.

In September 2016 Louise crystallises £200,000.  The standard lifetime allowance is now £1 million and this BCE has used up 20 per cent of the standard lifetime allowance.

At this point Louise’s personal lifetime allowance is calculated using the formula of:

SLA + (£1.5 million x LAEF)

This is because Louise has a recognised overseas pension scheme transfer factor for an event occurring in the period 6 April 2012 to 5 April 2014 and the BCE is after 5 April 2014.

Louise’s personal lifetime allowance is calculated as

£1 million + (£1.5 million x 0.26) = £1.39 million

This is 139 per cent of the standard lifetime allowance.  Louise has total BCEs of 123.33 per cent of the standard lifetime allowance (103.33 per cent in 2013-14 plus 20 per cent in 2016-17) so still hasn’t used up all her personal lifetime allowance.

## Other enhancement factors relating to events 6 April 2014 to 5 April 2016 {#}

Section 218(4), (5BC), (5BB) and (5BD) Finance Act 2004

This section applies where the individual does not have primary protection but has one or more of the following factors

• a pension credit factor from a post 5 April 2006 divorce – see PTM095200,
• a non-residence factor – see PTM095310,
• a recognised overseas pension scheme transfer factor – see PTM095410,

and they all relate to (an) event(s) that occurred in the period 6 April 2014 to 5 April 2016.

If the individual has more than one enhancement factor and at least one of them relates to an event that occurred before 6 April 2012 follow the guidance in the section Other enhancement factors relating to pre 6 April 2012 events.

If the individual has more than one enhancement factor and at least one of them relate to an event that occurred in the period 6 April 2012 to 5 April 2014 (and none relating to pre 6 April 2012 events) follow the guidance in the section Other enhancement factors relating to events 6 April 2012 to 5 April 2014.

### BCE 6 April 2014 to 5 April 2016

If the BCE occurred in the period 6 April 2014 to 5 April 2016 the individual’s lifetime allowance was calculated using the standard formula

SLA + (SLA x LAEF)

SLA is the standard lifetime allowance at the date of the BCE

LAEF is the lifetime enhancement factor (or if the individual has more than one factor the total of their lifetime allowance enhancement factors).

### BCE after 5 April 2016

If the BCE occurred after 5 April 2016 the individual’s lifetime allowance is calculated using the formula

SLA + (£1.25 million x LAEF)

SLA is the standard lifetime allowance at the date of the BCE

LAEF is the lifetime enhancement factor (or if the individual has more than one factor the total of their lifetime allowance enhancement factors).

If the standard lifetime allowance is more than £1.25 million this formula is replaced by the standard formula explained in the section BCEs occurring before 6 April 2012 – all factors.

## Individuals with any of the fixed or individual protections

If an individual has any of the fixed protections or individual protections the normal standard lifetime allowance is replaced by a higher amount as shown

• fixed protection (FP 2012) – £1.8 million
• fixed protection 2014 (FP 2014) - £1.5 million
• fixed protection 2016 (FP 2016) - £1.25 million
• Individual protection 2014 (IP 2014) – relevant amount, see PTM094200 (will be between £1.25 million and £1.5 million)
• Individual protection 2016 (IP 2016) - relevant amount, see PTM094210 (will be between £1 million and £1.25 million)

In calculating a personal lifetime allowance due to an enhanced lifetime allowance factor for somebody with one of the fixed or individual protections where you are required to use the standard lifetime allowance you use the relevant substituted standard lifetime allowance.

You should also be aware this rule also impacts:

• how lifetime allowance factors are calculated for any events that occur after the member has acquired the relevant fixed or individual protection.
• whether or not, and how, the standard formula is used for calculating someone personal lifetime allowance.

### Example

Philip has fixed protection which means his standard lifetime allowance is £1.8 million.

In 2014-15 Philip transfers £360,000 into a registered pension scheme from a recognised overseas pension scheme when the normal standard lifetime allowance was £1.25 million. Philip was not a relevant UK individual when he accrued these pension savings funds so all the transfer counts towards the enhancement factor.

Philip’s recognised overseas pension scheme transfer factor is calculated as:

The standard lifetime allowance for Philip is £1.8 million whilst he has valid fixed protection.  So Philip’s recognised overseas pension scheme transfer factor is calculated as:

£360,000/£1.8 million = 0.20

Philip crystallises £1.9 million in December 2016 when the normal standard lifetime allowance is £1 million.  As a lifetime allowance enhancement factor in respect of an event that occurred in the period 6 April 2014 to 6 April 2016 and a post 5 April 2016 BCE normally the personal lifetime allowance would be calculated using the formula:

SLA + (£1.25 million x LAEF)

However this formula only applies whilst the standard lifetime allowance is not more than £1.25 million.

When Philip crystallise his benefits he still has valid fixed protection so his standard lifetime allowance is £1.8 million. This means Philip’s personal lifetime allowance should be acidulated using the standard formula of:

SLA + (SLA x LAEF)

£1.8 million + (£1.8 million x 0.2) = 2.16 million

In March 2017 Philip loses fixed protection.  At this point Philip’s standard lifetime allowance become £1 million.  This in turn changes how his personal lifetime allowance is calculated to

SLA + (£1.25 million x LAEF)

£1 million + (£1.25 million x 0.2) = £1.25 million.

##