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LTA test under BCE 3 on pre-A Day scheme pensions
by Ian Neale 23/02/2007
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There is currently a consultation exercise being undertaken by HMRC (closing on 28 February; see previous Aries article) about the way that the tax rules on benefit crystallisation event 3 (BCE 3) operate. A BCE 3 is triggered when a pension in payment is increased by more than the permitted margin (normally, the greater of RPI and 5%).
Pensions Tax Simplification Newsletter No 25, due out on 28 February 2007, will include an item about what increases on pre-6 April 2006 pensions in payment are to be regarded as being within the permitted margin.
For scheme pensions which started before 6 April 2006, there is an additional measure as an alternative to the greater of 5% or RPI and it is described as "P%". This relates to the increases that may be made each year under the scheme's own provisions as they stood at 5 April 2006.
The important thing to note about "P%" is that it does not need to relate to a year-on-year percentage increase. HMRC's Newsletter will make it clear that if it can be established that an increase to a scheme pension which started before 6 April 2006 would have been permitted within the scheme provisions as they stood at 5 April 2006, it may be regarded as being within P%. Such an increase would fall within the permitted margin, and thus not give rise to a BCE 3. This would cover cases where the scheme rules as at 5 April 2006 provided for increases of the greater of RPI and 5% but subject to a minimum fixed amount, for example.
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