When to Apply for a Transitional Tax-Free Cash Amount Certificate TTFAC?
Published / Last Updated on 11/04/2025
As many will know, the maximum amount you can accumulate in pensions during your lifetime, the Lifetime Allowance (LTA) of £1,073,100, was abolished on 5th April 2024. This means that throughout your lifetime, you can currently build up unlimited funds and benefits in pensions as the LTA has gone. At the same time, two new allowances were introduced:
- Lump Sum Allowance (LSA) – a maximum tax-free lump sum total can be paid out in your lifetime of 25% of the old LTA i.e. 25% X £1,073,100 = £268,275.
- Lump Sum Death Benefit Allowance (LSDBA) – a maximum amount of lump sums that can be paid on death to beneficiaries’ tax free (less any tax free LSA already taken by the deceased) of £1,073,100. Any excess over the LSDBA paid as a lump sum to beneficiaries will be taxable at beneficiaries’ marginal rates of income tax.
Transitional Tax-Free Cash Amount Certificate (TTFAC) May Help LSA and LSDBA
- As part of this transition, with the LSA now set at £268,275 and an assumption also made that you took 25% lump sums even if you did not when drawing benefits (as well as the LSDBA at £1,073,100), you can apply for Transitional Tax-Free Cash Amount Certificates (TTFAC) from the schemes that took benefits from if you took lower lump sums than 25% or if they were restricted to prove that you took lower than 25% meaning you may be able to increase any remaining LSA and LSDBA.
- In addition, if benefits are held in a plan that offers beneficiary drawdown on death, a beneficiary selecting drawdown avoids any LSDBA allowance restrictions as beneficiary drawdown is “income” and is not tested against LSDBA.
- You should also note that tax-free lump sum payments (where the individual dies under 75) must be made within the relevant two-year period. Any lump sum payments made after the relevant two-year period will be taxed at the recipient's marginal rate of income tax.
- You should also note that in the October 2024 Budget it was announced that unused pension funds will be subject to inheritance tax so we wait for the formal legislation to be published in whether LSBA will be abolished entirely or will be kept so that a tax charge can be made on exceeding the LSDBA on death on top of any inheritance taxes also due (if not left to your legally married spouse or civil partner).
For more on LSA and LSDBA, see LTA and LSDBA
When Is Applying for a Transitional Tax-Free Cash Amount Certificate (TTFAC) Beneficial?
You should consider applying for TTFAC if you crystallised benefits (i.e., took some pension income, lump sums, or drawdown) between 5 April 2006 and 6 April 2024 and used 100% of your lifetime allowance.
If you used 100% of your lifetime allowance, you have no available lump sum allowance and only lump sum death benefit allowance left but a certificate may free up some lump sum and death benefit allowance if lower than 25% tax free lump sums were taken or tax-free lump sum death benefits rules are met such as the 2 year (death under 75) rule for tax free beneficiary withdrawals, where more of any lump sums paid may then become tax free. Take a look at the following suggestions where applying for a TTFAC may be beneficial:
- If reached age 75 between 5 April 2006 and 6 April 2024.
- If you had uncrystallised benefits that were tested against Benefit Crystallisation Event (BCE) 5 and BCE 5B at age 75 and drawdown benefits were tested against BCE 5A.
- BCEs was a test to see if you had breached the LTA limit even if you were not taking benefits - in this case reaching age 75.
- Any percentage of the lifetime allowance used on 5 April 2024 includes these BCE tests (even when benefits not taken) meaning it is assumed you had used up some or all of the LTA before 6 April 2024, even if you did not, meaning that you have used up some or all of your LSA when perhaps you had not meaning a TTFAC should be applied for to enable the BCE test to be disregarded.
- HMRC have confirmed they will bring forward changes to the legislation to resolve this BCE test issue.
- If you transferred to a Qualifying Recognised Overseas Pension Scheme (QROPS) before 6 April 2024 but still have uncrystallised benefits in the UK.
- A transfer to a QROPS, another BCE (BCE8) used up lifetime allowance but no tax-free benefits were paid.
- The caveat being that you need to still have uncrystallised pension savings left in the UK that will not be transferred overseas to use any additional LSA and LSDBA released by having a TTFAC.
- If you took benefits including a disqualifying pension credit (your ex-partner's pension that was already in payment to them when you divorced and then some or all of this was shared with you on divorce via a Pension Sharing Order) between 5 April 2006 6 April 2024.
- No tax-free cash can be paid from a disqualifying pension credit, but it would have used up lifetime allowance as the calculation to convert lifetime allowance used in the new LSA and LSDBA allowances assumes 25% was paid tax-free.
- If you started taking benefits from a Defined Benefit Scheme and took a lower than 25% tax-free cash amount between 5 April 2006 6 April 2024.
- The calculation to convert lifetime allowance used in the new Lump Sum Allowance (LSA) and Lump Sum Death Benefit Allowance (LSDBA) assumes 25% was paid tax-free.
- If you started taking benefits from a Safeguarded Rights Pension Scheme (some guarantees) such as Guaranteed Minimum Pension (GMP) and the tax-free lump sum was restricted to zero or lower then 25% to ensure any GMP benefits were covered between 5 April 2006 6 April 2024.
- Yet again. the calculation to convert lifetime allowance used in the new Lump Sum Allowance (LSA) and Lump Sum Death Benefit Allowance (LSDBA) assumes 25% was paid tax-free.
- If you took the maximum lumps sums allowed of 25% of the Lifetime Allowance (LTA) between 2016 and 2020 only (when the LTA was below the LTA 05/04/2024 of £1,073,100) and not during the period 2006 and 2015 and 2006/2007 (when the LTA was higher than £1,073,100).
- It is important to note that sums restricted because the LTA was smaller between 2016 and 2020 than LTA 05/04/2024 of £1,073,100 may mean more tax-free lump sums still available today for uncrystallised pension funds.
- It is equally important to note that sums enhanced because the LTA was higher between 2006 and 2015 than LTA 05/04/2024 of £1,073,100 may mean lower/nil tax free lump sums today for any uncrystallised pension funds.
When Applying for a Transitional Tax-Free Cash Amount Certificate (TTFAC) is Not Beneficial:
- You did not crystallise benefits between 5 April 2006 and 6 April 2024.
- You crystallised benefits after 6 April 2024. If you have taken any benefits after this date you are not allowed to apply for TTFACs, they are forefeit.
Important Note: If you do apply for TTFAC, you must send a copy of the TTFAC to the scheme administrators/providers of all your current registered pension schemes, annuities or scheme pensions within 90 days of the date you received the certificate. If you don't you could receive a penalty of £300 from HMRC. If you continue to fail to notify any other schemes, a further penalty of £60 per day may be applied until you have done so.
