Transitional certificates
The legislation, changes and the previous positions
Summary
A transitional tax-free amount certificate (TTFAC) accurately reflects the relevant tax-free lump sums paid to an individual before 6 April 2024.
Most members should not need to apply for a TTFAC as applying the standard transitional calculation will accurately reflect any tax-free lump sums taken by the member at a BCE.
Members, or their personal representatives if they have died, may wish to apply for a TTFAC if they have taken less than 25 per cent of their used LTA as tax-free lump sums.
Members can apply to any pension scheme they are a member of for a TTFAC. HMRC has stated individuals may wish to apply to the scheme they crystallised the majority of their pension before 6 April 2024 with, or to the scheme paying the first RBCE after 5 April 2024.
A member cannot apply for a TTFAC if they have already had an RBCE, nor can they make an application to a scheme they are not yet a member of. Personal representatives must apply for a TTFAC by 31 October in the tax year following the one in which the lump sum death benefit was paid.
Members who have a pre-commencement pension only cannot apply for a TTFAC. Members who have a pre-commencement pension and had a BCE (between 6 April 2006 and 5 April 2024) can apply for a TTFAC.
When you receive an application from a member, you must either issue a TTFAC or provide a notice of refusal within three months of receiving the application. You can only refuse an application if a member provides insufficient evidence.
If a member holds a TTFAC, do you have to apply it?
Yes. If the member holds a TTFAC, you must adjust the member’s LSA and LSDBA using the amounts shown on the TTFAC. The standard transitional calculation does not apply. This is the case even if the member would be worse off using the TTFAC.
Is a member legally required to notify you if they hold a TTFAC?
Yes. If the member / personal representatives hold a TTFAC they must send a copy to all certification administrators within 90 days of receiving the TTFAC or before their first RBCE.
A certification administrator is an:
- administrator of a registered pension scheme of which the individual is a member, or
- insurance company who is paying the individual a scheme pension or a lifetime annuity following the transfer of sums or assets from a registered pension scheme.
Which members should consider applying for a TTFAC?
Members, or their personal representatives if they have died, may wish to apply for a TTFAC if:
- they have taken less than 25 per cent of their used LTA as tax-free lump sums, and
- the amount of tax-free lump sum(s) they can take is likely to be limited by the LSA and/or LSDBA.
HMRC guidance states that applications should only be made where the applicant can provide complete evidence that, before 6 April 2024, the member received a lower amount as tax-free lump sums than that provided for by the standard transitional calculation.
Other members who may wish to consider an application:
Members who have taken a QROPS before 6 April 2024
Under the LTA regime when a member transferred their benefits to a QROPS it was a BCE 8 and the transfer used up LTA. From 6 April 2024, the standard transitional calculation will reduce a member’s LSA and LSDBA by 25 per cent of the LTA crystallised by the BCE 8, despite the individual not having taken payment of their benefits. The individual’s overseas transfer allowance (OTA) will also be reduced by 100 per cent of the LTA used.
Members can apply for a TTFAC to make sure a pre-6 April 2024 QROPS transfer is not deducted from their available LSA and LSDBA. The TTFAC will accurately reflect the relevant lump sums paid and will show no deduction from the LSA and LSDBA for the BCE 8.
QROPS paid from 6 April 2024 only use up the individual’s OTA.
Members who received a SIHLS before 6 April 2024
Where a member under age 75 has received a SIHLS before 6 April 2024, the standard transitional calculation requires that the:
- LSA is reduced by 25 per cent of the LTA used by the SIHLS
- LSDBA is reduced by 100 per cent of the LTA used by the SIHLS.
Members who have received a SIHLS may wish to apply for a TTFAC to ensure 25 per cent of the LTA used by the SIHLS is not deducted from their LSA.
You are required to deduct 100 per cent of a SIHLS (paid under age 75) from the LSDBA, irrespective of whether a member has a TTFAC.
Where a SIHLS is paid after 5 April 2024, the RBCE statement will accurately reflect that it only uses up LSDBA.
Members who have used up 100 per cent of their LTA
Section 126 (2) of the Finance Act 2024 provides that where a member has used 100 per cent of their LTA, they have no available LSDBA – see example 8.
These members may wish to apply for a TTFAC if the relevant lump sums they have taken are less than the LSDBA of £1,073,100.
Under the standard transitional calculation, the available LSDBA is reduced by:
- 100 per cent of the LTA used in respect of SIHLS paid under age 75
- 100 per cent of lump sum death benefits if the individual was under at 75 at the time of their death, and the benefit was paid to a person (rather than the personal representatives) within the two-year period
- otherwise, 25 per cent of the LTA previously used.
HMRC’s TTFAC tool
HMRC has published a TTFAC tool for members to check if they can apply for a certificate. However, the tool only covers one of the three scenarios we have identified above where members may wish to apply for a certificate ie where a SIHLS has been paid before 6 April 2024.
Who should not apply for a TTFAC?
Members should not apply for a TTFAC where they believe this might result in lower available allowances than under the standard transitional calculation.
This is because the legislation does not allow individuals to apply for a TTFAC to compare the results under each process. If a TTFAC is granted to a member, it must be used. The TTFAC sets out their new available allowances and puts them in the correct tax position. There is no opportunity to revert to the standard calculation once a TTFAC has been granted.
Members may not always be better off with a TTFAC, even where they have taken less than 25 per cent of their benefits tax free. This could happen where a BCE took place when the LTA was higher than the LSDBA.
Members should be sure applying for a TTFAC is right for them and may wish to seek independent financial advice.
What is complete and accurate evidence?
The application must be accompanied by complete and accurate evidence supporting the payment of the total amount of tax-free lump sums the member has taken at a BCE.
The onus is on members to provide complete and accurate evidence – it forms part of the application.
The legislation does not prescribe exactly what constitutes complete and accurate evidence because this would overly restrict what you can and cannot accept. Evidence will need to be considered on a case-by-case basis. HMRC have indicated appropriate evidence would be financial records, BCE statements or bank statements.
Applicants must always provide evidence of the total LTA percentage used as well as the total of all relevant tax-free lump sums and, if applicable, relevant lump sum death benefits paid before 6 April 2024.
What should a TTFAC contain?
If you are satisfied the member has provided complete and accurate evidence, you must issue a TTFAC containing the following information:
- the member’s name, address and national insurance number
- the member’s LTA previously-used amount expressed as a percentage of the standard LTA at 5 April 2024
- the amount you are satisfied is the member’s lump sum transitional tax-free amount
- the amount you are satisfied is the member’s lump sum and death benefit transitional tax-free amount
- a statement certifying you are satisfied the two transitional tax-free amounts are correct.
Lump sum transitional tax-free amount
This is the total of the following amounts the individual was entitled to before 6 April 2024. The amounts are only included if they were not subject to income tax:
25 per cent of the LTA used at a deemed BCE
You must also include any PCLSs and UFPLSs paid after age 75.
Lump sum and death benefit transitional tax-free amount
This is the total of the following amounts that the individual was entitled to before 6 April 2024. The amounts are only included if they were not subject to income tax:
- PCLS
- UFPLS
- SALS
- 25 per cent of the LTA used at a deemed BCE
- SIHLS
- a relevant lump sum death benefit.
You must also include any PCLSs and UFPLSs paid after age 75.
A relevant lump sum death benefit does not include a lump sum death benefit paid in respect of rights that were crystallised before 6 April 2024. These are called transitional lump sum death benefits; they do not reduce a member’s LSDBA.
When should you issue a TTFAC?
You must issue a TTFAC within three months of receiving the application.
You can request further evidence from the applicant within this three-month window. Requesting further information does not restart the three-month window. This still starts when you receive the initial application.
Where a certification administrator fails to provide a certificate or notice of refusal, a penalty of £300 can be issued.
What form should the TTFAC take?
You can determine the form of the TTFAC. It can also be incorporated into another document given to the applicant.
Can you refuse an application for a TTFAC?
You can only refuse an application on the grounds of insufficient evidence.
Can a member apply more than once?
Yes. Where an initial application is refused, there is nothing in legislation to prevent members making more than one application. However, if no further evidence is provided, you may notify the member the application is refused. You do not need to reconsider the same evidence or wait three months to respond.
Also, where a TTFAC is cancelled, members can make another application, provided they have not had an RBCE.
Can you cancel a TTFAC?
Yes. If at any time it appears either of the transitional tax-free amounts are not accurate, you must cancel the certificate by giving notice of the cancellation to the member or, if the member is deceased, their personal representatives.
What happens when a TTFAC is cancelled or is inaccurate?
If the member / personal representatives receive a cancellation notice of a TTFAC they must send a copy of the cancellation notice to all certification administrators within 90 days of receiving it, or before their first RBCE.
Where a member / personal representatives fail to send to send a copy of the cancellation notice to all certification administrators, HMRC can issue a penalty.
PTM174300 states that individuals cannot rely on a TTFAC if it is inaccurate. It goes on to say:
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.
TTFACs cannot be revised or updated. Where a TTFAC is cancelled, members can make another application, provided they have not had an RBCE.
If you pay a PCLS having relied on information on an inaccurate TTFAC, the overpaid portion remains an authorised payment. If you pay a trivial commutation lump sum due to an inaccurate TTFAC, the lump sum is still considered an authorised payment.