PTM174300 - Lump sum allowance and lump sum and death benefit allowance: Transitional rules for the tax year 2024-25: Transitional tax-free amount certificates
As of 6 April 2024 there is no longer lifetime allowance. If you are looking for information about protections, enhancement factors and the lifetime allowance charge please see these pages on The National Archives.
If you are looking for information about the principles of lifetime allowance and benefit crystallisation events please see these pages of The National Archives.
Lump sum transitional tax-free amount
Lump sum and death benefit transitional tax-free amount
Application for certification
Complete evidence
Certification
Pre-commencement pensions
Paragraph 127 Schedule 9 Finance Act 2024
If an individual holds complete and accurate records for all the tax-free benefits they received prior to 6 April 2024, and can show that less than 25% of the benefits they took before that date were taken as tax-free lump sums, they may choose to apply for a transitional tax-free amount certificate from their pension scheme confirming their lump sum transitional tax-free amount and their lump sum and death benefit transitional tax-free amount.
This certificate can then be used to determine their lump sum allowance and lump sum and death benefit allowance.
These transitional rules come into force for the 2024-25 tax year and subsequent tax years.
Lump sum transitional tax-free amount
The lump sum transitional tax-free amount is the total of the following amounts (if any) that the individual was entitled to prior to 6 April 2024:
- Pension commencement lump sums
- Uncrystallised funds pension lump sums
- Stand-alone lump sums
- Any tax-free lump sums taken before 6 April 2006
so far as no income tax charge has arisen in respect of these lump sums.
In addition, if the member had a pension in payment before 6 April 2006, 25% of the amount of the deemed BCE under paragraph 20 Schedule 36 FA 2004 that occurred immediately before the first BCE is included in the lump sum transitional tax-free amount.
The lump sum transitional tax-free amount is used to determine an individual’s available lump sum allowance, see PTM174100.
Lump sum and death benefit transitional tax-free amount
The lump sum and death benefit transitional tax-free amount is the total of the following amounts (if any) that the individual was entitled to prior to 6 April 2024:
- Each relevant lump sum
- Each relevant lump sum death benefit
- Any tax-free lump sum taken before 6 April 2006
so far as no income tax charge has arisen in respect of these lump sums.
In addition, if the member had a pension in payment before 6 April 2006, 25% of the amount of the deemed BCE under paragraph 20 Schedule 36 FA 2004 that occurred immediately before the first BCE is included in the lump sum and death benefit transitional tax-free amount.
The lump sum and death benefit transitional tax-free amount is used to determine an individual’s available lump sum and death benefit allowance, see PTM174200.
Application for certification
An individual (or the individual’s personal representatives, if the individual is deceased) may apply for a certificate to any registered pension scheme they are a member of. Individuals may wish to apply to the registered pension scheme under which they crystallised the majority of their pension benefits prior to 6 April 2024, or under which they expect to have their first relevant benefit crystallisation event after this date.
An individual cannot make an application to a scheme they are not yet a member of. An individual cannot apply for a certificate if they have already had a relevant benefit crystallisation event occur on or after 6 April 2024. A certificate must be issued before a member’s first relevant benefit crystallisation event.
The individual must submit complete evidence of their lump sum transitional tax-free amount and lump sum and death benefit transitional tax-free amount to the registered pension scheme.
Complete evidence
An individual must submit complete evidence when applying for tax-free transitional certificate. Complete evidence must always account for the total percentage of lifetime allowance used so that a scheme administrator can determine the portion of the pension benefits that were taken as tax-free lump sums.
It is for the scheme administrator to decide if the evidence provided is sufficient. They will need to consider the evidence on a case-by-case basis. Some examples of appropriate evidence would be financial records, BCE statements or bank statements.
Without such evidence an application should be refused by the scheme administrator. Insufficient evidence is the only grounds on which a scheme administrator may refuse an application.
An individual can apply again for a certificate after being denied by a scheme administrator due to lack of evidence; however, complete evidence will need to be provided for this application to be reconsidered. A scheme administrator may request further evidence, but the response from the individual must be provided within the three-month window from when the application was first made. An individual can only reapply for a certificate on rejection if they have not yet had a relevant benefit crystallisation event.
Where an individual fraudulently or negligently makes a false statement, or a pension scheme administrator assists in providing a statement they know to be inaccurate, a penalty of £3,000 can be issued.
Certification
When a scheme receives an application from an individual, they must either issue a certificate or provide the applicant a notice of refusal before the end of the three-month period starting from the date the scheme receives the application.
If a scheme administrator deems that an individual is entitled to a tax-free transitional amount certificate then the certificate must contain the following information:
- The individual’s name, address and national insurance number
- The individual’s lifetime allowance previously-used amount expressed as a percentage of the standard lifetime allowance
- The amount that the scheme administrator is satisfied is the individual’s lump sum transitional tax free amount
- The amount that the scheme administrator is satisfied is the individual’s lump sum and death benefit transitional tax-free amount
The certificate is not required to be in a distinct document and can be in any form that the scheme administrator deems appropriate, including being incorporated into any other document issued to the applicant.
If at any time a scheme administrator becomes aware that the amount specified on the certificate does not reflect the individual’s actual lump sum transitional tax-free amount and/or their actual lump sum and death benefit transitional tax-free amount, then the scheme administrator must cancel the certificate. This is achieved by giving notice of cancellation to the applicant, or if the applicant is deceased, the applicant’s personal representatives.
The certificate comes into force when it is issued and ceases if cancelled by the scheme administrator.
If the scheme administrator subsequently cancels the individual’s certificate and it alters the individual’s tax position, then the relevant benefit crystallisation events prior to the cancellation must be recalculated based on the actual lump sum transitional tax-free amount and lump and death benefit transitional tax-free amount.
Refusal
Where an individual is refused a transitional tax-free amount certificate and wishes to dispute the decision, this should be raised with their pension scheme.
Inaccurate transitional tax-free certificates
Individuals cannot rely on a transitional tax-free amount certificate if it is inaccurate.
If the lump sum transitional tax-free amount and/or the lump sum and death benefit transitional tax-free amount stated on a certificate is incorrect (for any reason), then the allowances should be recalculated using the standard transitional calculation to determine the individual’s actual lump sum allowance and lump sum and death benefit allowance amount and any income tax liability.
This applies regardless of whether the error is identified by the scheme administrator, and regardless of whether the certificate has been cancelled.
This may mean that the member has additional income tax to pay.
Transitional tax-free amount certificates cannot be revised or updated. However, if a certificate is found to be inaccurate and is cancelled, the member may make another application for a certificate if they have not yet had a relevant benefit crystallisation event.
Pre-commencement pensions
Individuals whose pensions in payment are pre-commencement pensions and who have had no benefit crystallisation events between 6 April 2006 and 6 April 2024 cannot apply for a transitional tax-free amount certificate.
Individuals who have pre-commencement pensions in payment but who have had one or more benefit crystallisation events between 6 April 2006 and 6 April 2024 will be eligible to apply for a transitional tax-free amount certificate. These individuals with pre-commencement pensions are still required to submit complete evidence to their pension scheme and should provide of their deemed benefit crystallisation events which will reflect their benefits taken before the commencement of the lifetime allowance.