This has to be done before the first relevant benefit crystallisation event on or after April 6 2024.
Boosting allowances
Let's take a look at an example.
The certificate boosts Ailsa’s allowances to tax-free lump sums. However, she still has to have the funds available to take the tax-free cash from.
Under the new rules the maximum PCLS is one-third of the amount used to provide an income (for a defined contribution scheme this is the same as 25 per cent of the fund), subject to having enough LSA available (as long as a SIHLS has not been taken).
If Ailsa’s self-invested personal pension was valued at £650,000, she could take a maximum PCLS of the lower of:
- 25 per cent of the fund = £162,500.
- LSA on the certificate = £160,965.
So, Ailsa can take a PCLS of £160,965. If she had not requested a certificate, then the maximum PCLS she could have taken would have been £107,310.
Applying
The certificate can only be applied for before the first relevant benefit crystallisation event following April 6 2024. If the member asks for a certificate but has already taken a tax-free lump sum under the new regime, then it is too late.
The legislation states the member can ask any pension scheme they are (or were) a member of. But HMRC's pension schemes newsletter 155 (issued in January 2024) contradicts this by saying the member must apply to the scheme they are taking their first lump sum from after April 6 2024.
Although personal representatives can also ask for a certificate once the member has died, this may be a struggle in practice, as locating the paperwork could be difficult. It may be easier to request any certificates in the member’s lifetime.
Members can have no allowances left – either LSA or LSDBA – and still apply for a certificate. But, in guidance, HMRC is firm a certificate is only for those who have received a lower amount as tax-free lump sums than that provided for by the standard transitional calculation.
On being asked for a certificate, pension schemes have three months to either issue the certificate or refuse to do so. If they do not meet this deadline, they will be fined.
HMRC has said that if the scheme had been given complete evidence, then it must issue a certificate. So, it appears schemes cannot be fussy and refuse to issue the certificate if they have received the right information.
HMRC has also said members can only apply once for a certificate.
What does the certificate show?
Currently, the legislation says the certificate must show:
