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Transitional Tax-Free Amount Certificates: When Might One Be Useful?
Pensions Kieran Cook Pensions Kieran Cook

Transitional Tax-Free Amount Certificates: When Might One Be Useful?

The abolition of the Lifetime Allowance introduced a new system for restricting tax-free pension lump sums. For people who accessed pension benefits before 6 April 2024, the standard transitional calculation assumes that 25% of the benefits previously tested against the Lifetime Allowance was received tax-free. This will often be accurate, but it can significantly overstate the amount actually taken.

A Transitional Tax-Free Amount Certificate allows this assumption to be replaced with the individual’s actual historic tax-free amounts. It can therefore preserve more of the Lump Sum Allowance where less than 25% was taken, or where pension benefits were crystallised without any tax-free cash being received. However, the certificate is not automatically beneficial, requires complete evidence and must generally be obtained before the first relevant post-April 2024 lump sum is taken.

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