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, 127B and 128 Schedule 9 Finance Act 2024
19A and 19B The Registered Pension Schemes (Authorised Payments) Regulations 2009
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 a certification administrator confirming their lump sum transitional tax-free amount and their lump sum and death benefit transitional tax-free amount.
A certification administrator in relation to an individual means either:
- the scheme administrator of a registered pension scheme of which the individual is a member (or if deceased, was a member immediately before death), or
- an insurance company to which a registered pension scheme has transferred sums or assets to secure the payment to the individual of a scheme pension or lifetime annuity.
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
so far as no income tax charge has arisen in respect of these lump sums.
For information on how the pre-commencement pensions are taken into consideration for the lump sum transitional tax-free amount see the subsection "Pre-commencement pensions" below.
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
so far as no income tax charge has arisen in respect of these lump sums.
For information on how the pre-commencement pensions are taken into consider for the lump sum and death benefit transitional tax-free amount see the subsection "Pre-commencement pensions" below.
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 certification administrator in relation to the individual. 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 apply for a certificate if they have become entitled to a relevant lump sum, or after 31 October after the tax year in which the relevant lump sum death benefit is paid in respect of the individual. A certificate must be issued before an individual becomes entitled to a relevant lump sum, or after 31 October after the tax year in which a relevant lump sum death benefit is paid.
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 certification 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 certification administrator. Insufficient evidence is the only grounds on which a certification administrator may refuse an application.
An individual can apply again for a certificate after being denied by a certification administrator due to lack of evidence; however, complete evidence will need to be provided for this application to be reconsidered. A certification 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 lump sum paid, or after 31 October after the tax year in which the relevant lump sum death benefit is paid.
Where an individual fraudulently or negligently makes a false statement, or a certification administrator assists in providing a statement they know to be inaccurate, a penalty of £3,000 can be issued.
Certification
When a certification administrator 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.
Where a certification administrator fails to provide a certificate or notice of refusal, a penalty of £300 can be issued.
If a certification 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 certification 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 certification administrator.
If the certification 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.
Information by individuals to certification administrators on issue of a certificate
Where an individual has been issued a transitional tax-free amount certificate by a certification administrator and there are one or more other certification administrators in relation to the relevant person (which is the individual (or where the individual is deceased, the individual's personal representative)) the individual or personal representative must provide a copy of the certificate to each certification administrator. This must be done before the end of a 90-day period, beginning on the day on which the relevant person receives the certificate, and before the first day on which a relevant benefit crystallisation even occurs in relation to the individual.
If an individual is a member of a pension scheme as a result of a block transfer, the individual must provide a copy of the certificate before the end of a 90-day period, beginning on either the day the relevant person received the certificate or the day in which they received the transfer notice (whichever is later) and before the first day on which a relevant benefit crystallisation event occurs in relation to the individual.
Refusal
Where an individual is refused a transitional tax-free amount certificate and wishes to dispute the decision, this should be raised with their certification administrator.
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 actual 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.
Where an individual is overpaid a pension commencement lump sum due to an inaccurate transitional tax-free certification, the overpaid portion is considered an authorised payment.
Where an individual is paid a trivial commutation lump sum or winding-up lump sum due to an inaccurate transitional tax-free certification, the lump sum is considered an authorised payment.
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.
Information by individuals to certification administrators on cancellation of a certificate
Where an individual has had a transitional tax-free amount certificate cancelled by a certification administrator and there are one or more other certification administrators in relation to the relevant person (which is the individual (or where the individual is deceased, the individual’s personal representative)) the individual or personal representative must provide a copy of the cancellation notice to each certification administrator.
This must be done before the end of a 90-day period, beginning on the day on which the relevant person receives the cancellation notice, and before the first day on which a relevant benefit crystallisation event occurs in relation to the individual.
If an individual is a member of a pension scheme as a result of a block transfer, the individual must provide a copy of the cancellation notice before the end of a 90-day period, beginning on either the day the relevant person received the cancellation notice or the day in which they received the transfer notice (whichever is later) and before the first day on which a relevant benefit crystallisation event occurs in relation to the individual.
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 should not provide evidence for any pre-commencement benefits taken before 6 April 2006 and should provide evidence for any BCE's taken between 6 April 2006 and 6 April 2024 slongside evidence of the deemed BCE calculation which occured at the point of the first BCE. Certification administrators will then calculate 25% of the deemed BCE and any of the actual BCE's taken to calculate the lump sum and lump sum and death benefit transitional tax-free amount.