UK Pensions

Technical FAQs

What is the maximum contribution that can be made into the Pensions?

The amount an individual can contribute to your pension is unlimited. However there are limits on the amount that is eligible for tax relief.

How much can I contribute into my Pension?

Pension contributions by a ‘relevant UK Individual’ are unlimited but there are limits on how much of the pension contribution will receive tax relief. The total contribution (includes the tax relief ) can not exceed the higher of £3,600 or your 100% of your relevant UK earnings.

Relevant EarningsMax Net ContributionMax Net ContributionTotal Contribution

Contributions made that are higher than your relevant UK earnings will not receive tax relief.

Who is a ‘relevant UK individual’?

An individual under the age of 75 is a relevant UK individual for a tax year if they:

  • have relevant UK earnings chargeable to income tax,
  • are resident in the United Kingdom,
  • were resident in the UK at some time during the’ve tax and they were also resident in the UK when they joined the pension scheme, or
  • has earnings from overseas crown employment (or is the spouse or civil partner of such a person).
What is UK relevant earnings?

Relevant UK earnings means any one or more of the following types of income:

  • employment income, such as: pay, wages, bonus, overtime, or commission and other P11D benefits.
  • income from self-employment or a partnership
  • redundancy payment above the £30,000 tax exempt threshold
  • income from a UK and/or EEA furnished holiday lettings business
  • patent income, where the individual alone or jointly devised the invention

Pension income, Capital Gains, rental income and investment income is not classed as earnings and cannot be included in the definition of relevant UK earnings.

Relevant UK earnings ARE:
Employment income, such as salary, wages, bonus, overtime or commission

Sole trader or partners Net Profit
Dividends and other investment returns

Rental income
Income arising from patent rights and are treated as earned income

General earnings from an overseas Crown employment, which are subject to UK tax
Capital gains from selling assets

Pension income
What is the percentage of tax relief claimed?

Hartley Pensions complies with the HMRC relief at source tax reclaim model. This means that we will reclaim basic rate tax (20%) on Net Contributions.

I am a Higher Rate tax payer, who claims the extra tax relief?

Higher rate tax payers and additional rate tax payers can claim any further relief due on their Self Assessment form. If you have any questions regarding eligibility for further relief or completing their Self Assessment form the client needs to contact HMRC on 0300 200 3310.

Contribution Examples

A client earns a Gross Salary of £20,000.
The maximum Net contribution that will receive tax relief on is £16,000. Tax Relief of £4,000 will be claimed.
This can be calculated by £20,000 x 80% = £16,000.

What happens if a client contributes more than their relevant earnings?

The contribution will be spilt between a Net Contribution and Gross Contribution.

For example:
Client earns a Gross Salary of £20,000 and wants to make a £30,000 contribution.
The maximum amount that will receive tax relief is £16,000.
This will be recorded as:
£16,000 Net Contribution (Tax relief claimed £4,000)
£14,000 Gross Contribution

Employer Contributions

Contributions can be made into the members SIPP by their employer. Employer contributions are not restricted by the employee’s relevant UK earnings. Employer contributions are paid gross and corporation tax relief is granted via the company accounts.

Third Party Contributions

The payment of contributions is not limited to the member or employer; other people can also make contributions on the individual’s behalf.

These contributions are treated as if they are paid by the individual (SIPP Member) with the limits that apply to individual contributions. So tax relief is restricted to the higher of £3,600 or 100% of the member’s relevant UK earnings.

What is the minimum age that a client can take benefits?

The client must be aged 55 or over. There is no upper age limit that the client has to take benefits by.

How much tax free cash can a client take?

Clients that are aged over 55 can take a maximum of 25% of their SIPP’s overall value tax free. This is up to a maximum of the Lifetime Allowance (25% of £1,073,100). Clients can only take this option once. The remaining fund can be used to produce income.

Do clients have to take income once they receive their tax free cash?

No, clients can postpone pension payments until they are ready. The maximum amount of income will be calculated by the client is in control on when they receive the income.

A Client does not wish to take their full tax free cash allowance?

Clients can specify a lower tax free cash amount if they wish. Hartley Pensions will crystallise only the amount required to generate the tax free cash they have requested.

For example:
Client has a £200,000. Max Tax Free Cash available is £50,000 (£200,000 x 25% = £50,000).
Client wishes to receive £25,000 as a tax free cash lump sum. Hartley Pensions will crystallise only £100,000 to generate £25,000 Tax Free Cash lump sum
(£100,000 x 25% = £25,000). This will leave a crystallised fund of £75,000 and an uncrystallised fund of £100,000. Further tax free cash can be taken from the uncrystallised fund in the future.

What does crystallise mean?

When a client takes benefits from their pension it is known as a Benefit Crystallisation Event. The crystallised fund is the pension fund value that is used to provide the pension benefits.

What types of Drawdown are available to clients?

From the 6th April 2015 clients moving into drawdown for first time will move into Flexi-Access Drawdown. Existing clients in Capped Drawdown can stay in capped drawdown. Clients in phased capped drawdown can select to crystallise further funds into capped drawdown.

What is Flexi-Access Drawdown?

All new clients crystallising their funds after the 6th April 2015 will do this under Flexi-Access Drawdown.

Flexi Access drawdown allows client to take 25% tax free cash and then access their remaining fund flexibly. There are no limits on the amount of funds they take from their fund. They can take their entire pot or keep it invested. All income taken either as a lump sum or income will be paid via payroll (14th or 28th of the month) and taxed under PAYE.

What is Capped Drawdown?

Capped drawdown is a form of ‘income withdrawal’ where your pension is paid direct from the funds in your pension scheme. Within certain limits you can choose how much pension you can get each year. You can change the amount you receive each year.

What are Uncrystallised Funds Pension Lump Sum payments (UFPLS)?

This allows clients to take lump sum payments from their pension fund without crystallising their funds.

For example

  • Client has £500,000 pension fund
  • Clients wishes to take £100,000 lump sum through an UFPLS
  • Of the £100,000 the lump sum will be spilt between tax free cash and income
  • £25,000 lump sum
  • £75,000 taxed as Income

By taking an UFPLS the client will trigger their Money Purchase Annual Allowance (MPAA).

Please note that the client must have unused Lifetime Allowance available to be able to have an UFPLS

What is Phased Drawdown?

Phased drawdown allows you to draw your tax free benefits over time and not in one go. You do not have to take your maximum tax free cash at outset.
You can take a series of tax free lump sums from your uncrystallised fund.

For example
Mr Smith has an Uncrystallised pension fund of £200,000.

His maximum tax free cash he can take is £50,000 (£200,000 x 25%)
Mr Smith decides he only wishes to have £10,000 tax free cash. We would only crystallised £40,000.
This would leave Mr Smith with £30,000 crystallised fund and £160,000 uncrystallised fund.
Mr Smith can take 25% of his remaining uncrystallised pot at anytime or repeat the process by taking smaller tax free lump sum. He can do this until he has extinguishes his uncrystallised fund.

How will lump sums and income from Flexi-Access treated for tax purposes?

Once the maximum tax free cash payment has been paid all remaining funds withdrawn will be taxed at the clients marginal rate. This can be paid as regular income or ad-hoc lump sums.

By taking an income or lump sum the client will trigger their Money Purchase Annual Allowance (MPAA).

How will a client opt to move from Capped Drawdown to Flexi-Access?

An election must be made to transfer from Capped Drawdown to Flexi Access Drawdown.  To make the election easy a client is required to complete the switch to Flexi Access form and provide to Hartley Pensions to process.

How much income can a client take in capped drawdown?

The maximum income that a client can take is calculated from the remaining crystallised funds held within the pension. A prescribed formula by HMRC states the maximum amount the client can take.

Is there a minimum income amount that has to be taken?

No. Clients can select to receive any income amount they like as long as it does not exceed the maximum income level.

What does the maximum level of GAD mean?

GAD is the term used for the calculation that produces the maximum income. GAD stands for the Government Actuary Department.

What is 150% of GAD?

The formula used to calculate the income produces a base income figure. The client can then choose to take between 0% and 150% of this amount as their income amount. The base figure should be an equivalent income value to an annuity.

What is a pension year?

A pension year is the 12 month period that the maximum income amount can be provided. The client can receive up to their maximum income amount during the 12 month period. The income amount then resets at the beginning of the new pension year.  A clients pension year will not mirror the tax year.

What happens if a client receives more that their maximum permitted income amount under capped drawdown?

Previously the client would be have been charge an unauthorised tax charge. From 6th April 2015 the client will automatically be moved to Flexi Access Drawdown and trigger the MPAA.

How are pension payments taxed?

Pension payments are run through PAYE. This means that pension payments are potentially liable to tax. On setup of pension payments a HMRC Tax Code is required to ensure the correct level of tax is applied.

On setup of pension payments your pension provider will require either the clients latest P45 or a HMRC New Starter Checklist to be completed.

Income requested = £37,500 gross
Tax Code = 1185L which is equal to £11,850 tax free.
14th November is in tax month 8

8/12ths of £11,000 = £7,900.00 (this is the payment that will be tax free given the current tax month)
8/12ths of £34,500 = £23,000.00 (this is income tax banding for basic rate pay rate given the current tax month)

The taxable income (£37,500 – £7,900.00) = £29,600.00
This taxable income figure is above the basic rate banding, therefore the tax will be calculated as;

£23,000.00 (which falls within the basic rate band) @ 20% = £4,600.00
£6,600.00 (which is the sum above the basic rate band) @ 40% = £2,640.00

Total tax due is £7,240.00
Net pay is £30,260.00

As you will be aware these figures are not exact to the payslip, however the differences are due to rounding.

We use an HMRC approved software package, it is unable to provide other reports of payments to show you the calculation, other than the payslip. However, attached is a screenshot of the same calculation using a tool from the HMRC website to calculate tax. This can be found at for your reference.

HMRC calculate the personal allowance this way and if you have not used the allowance in full during the tax year, you may receive a rebate monthly for the remainder of that tax year. Any rebates that are due will be automatically paid via your SIPP/SSAS. You will not need to contact ourselves or HMRC in order to process these.

The above example is based on the individual being a UK resident. With effect from 6th April 2018 Scottish residents are subject to different tax brackets.

How long is the capped drawdown income figure guaranteed for?

The income figure is guaranteed for 3 years (for under 75) and 1 year (for over 75’s). The maximum income is then recalculated.

What is a Capped Drawdown Pension Review?

To make sure that the income drawdown fund continues to provide an income and isn’t depleted, the maximum income that can be taken is reviewed. For members under age 75 this is done on the following basis:

  • at least every three years
  • as a result of certain events (Divorce, partial transfer of funds to purchase an annuity)
  • when the member requests an additional review.
What is a benefit crystallisation Event?

A Benefit Crystallisation Event (BCE) may occur when the SIPP member puts part, or all, of their pension into payment. There are different BCEs to cater for the different benefits the scheme may provide i.e. an income, a lump sum payment or a transfer to an overseas pension scheme.

When a benefit crystallisation event occurs it is tested against the lifetime allowance.

What happened to clients that were in Flexible drawdown?

Flexible Drawdown has been replaced from 6th April 2015. Any clients that were in Flexible Drawdown will move automatically to Flexi access-Drawdown.

How are funds taxed when taken under UFPLS?

25% of the fund can be taken tax free. The remaining 75% of the fund value is taxable based on your marginal rate of income tax. A P45 or a ‘New Starter Form’ will be required to be completed to calculate income tax payable through PAYE.

What is the Annual Allowance?

An annual allowance for pension savings applies each year and is based on an input period. The input period mirrors the tax year.

The current Annual Allowance is £40,000 for the 2021/2022 tax year. Anything over the annual allowance will attract a tax charge at the client’s marginal rate.

Individual, employer and third party contributions all count towards the annual allowance.

It may be possible to pay more than the annual allowance in a tax year without an annual allowance charge becoming due by carrying forward unused annual allowance from previous years.

What is the Money Purchase Annual Allowance?

On 6th April 2015 the Money Purchase Annual Allowance (MPAA) was introduced under the Taxation of Pensions Bill. This new annual allowance restricts the pension contributions that you can save into any Money Purchase Pension Scheme to £4,000 per input period. Any excess contributions above £4,000 will be subject to an annual allowance charge.

How is the Money Purchase Annual Allowance Trigger?

The MPAA is triggered through the following events:

  • you have drawdown funds from a flexi-access drawdown fund,
  • you have received an uncrystallised funds pension lump sum (UFPLS);
  • you have notified us that you wish to convert your pre-6 April 2015 drawdown pension fund to a flexi-access drawdown fund and you subsequently take a drawdown pension from that fund;
  • you have taken more than the permitted maximum for capped drawdown from a pre-6 April 2015 drawdown pension fund;
  • you have received a stand-alone lump sum and you are entitled to primary protection with a greater than £375k protected tax free lump sum right;
What happens once the MPAA has been triggered?

Clients must inform all other money purchase pension schemes that they have Triggered the MPAA and the date this is effective from. This must be completed within 91 days of the MPAA being triggered. Failure to complete this will lead to fines imposed by HMRC.

What is Tapered Annual Allowance?

From 6th April 2016 the annual allowance for tax relieved pension savings will be reduced for those with ‘adjusted incomes’ of over a certain amount. Their annual allowance will be reduced by £1 for every £2 of income they over the adjusted income threshold.

Prior to the 2020/2021 tax year the adjusted income threshold was £150,000 and the tapered annual allowance could not be reduced to less then £10,000.

From 6th April 2020 the adjusted income threshold was increased to £240,000 and the tapered annual allowance could not be reduced to less then £4,000.

Adjusted IncomeReductionNew Annual Allowance










Adjusted income

Adjusted income includes taxable earnings and all pension contributions (including employer contributions), but does not include charitable contributions.

Mrs Jones has a salary of £230,000 and her employer contributes £30,000 into her pension. Her adjusted income will be £260,000 and will lower her annual allowance to £30,000.

Threshold Income

Those with income, excluding pension contributions, below a £200,000 then the threshold tapered allowance will not be applied

Mr Smith has a salary of £195,000. His employer makes a contribution of £60,000. His adjusted Income is now £255,000. His Annual Allowance will not be reduced as his threshold income is below the £200,000 limit.

Those with income, excluding pension contributions, below a £200,000 threshold will not be subject to a Tapered Annual Allowance. Anti-avoidance rules will apply so that any salary sacrifice set up on or after 9 July 2015 will be included in the threshold definition.

What is Carry Forward?

To avoid the Annual Allowance charge clients are able to take advantage of the Carry Forward Rules. If a client has triggered the Money Purchase Annual Allowance then carry forward is not an option.

  • Clients who have not used up their annual allowances from the previous 3 tax years
  • Unused allowances are brought forward to allow tax relief on contribution above £40,000.
Can carried forward be used to protect against the Money Purchase Annual Allowance


Carry Forward Amounts
Tax year2013/142014/152015/162016/172017/18

The client must have had a pension during the last 3 years to take advantage of carry forward rules.

Carry Forward Example
Tax YearContribution MadeCarry ForwardTotal Allowed to Carry Forward
2018/2019Client can contribute up to £85,000 (£55,000 carried forward plus £45,000 from this years allowance)
Carrying forward the Tapered Annual Allowance

Starting on 6th April 2017 you will be able to carry forward unused allowances from your Tapered Annual Allowance. The unused reduced annual allowance can be carried forward to future years to help make a larger contribution to mitigate the annual allowance tax charge.

For example

Tax YearAdjusted IncomeAnnual Allowance ReductionNew Tapered Annaul AllowanceContribution MadeCarry Forward

Carry forward from previous tax years will still be based on the normal unused annual allowance.

Who is liable for the Annual Allowance charge?

Normally the individual will pay their annual allowance charge liability and account for the payment by completing a Self Assessment tax return. From 11 August 2011 an individual may have the right to elect to require your pension provider to pay some or all of their annual allowance charge liability out of the client’s pension fund.

What happens if a client pays in more than the Annual Allowance?

There is potentially a tax charge that HMRC will levy on the client personally. It is possible for the client to use Carry Forward provision to mitigate any tax charge. This is a client led procedure. Hartley Pensions recommends the client takes advice from a suitably qualified adviser.

What is the Lifetime Allowance?

The Lifetime Allowance creates a ceiling on the benefits value that can be built up by members of registered pension schemes whilst continuing to benefit from tax relief. The current Lifetime Allowance is £1,073,100. If the benefits value when they are taken exceeds the Lifetime Allowance the difference between the two is subject to the Lifetime Allowance Charge.

What are the tax charges if you go above the lifetime allowance?

The Lifetime Allowance Charge can be applied in either of two ways or a combination of both depending on how the excess benefits value above Lifetime Allowance. The charge is:

  • 55% if taken as a lump sum, or
  • 25% if taken as income.
What is Lifetime Allowance Protections?

The Lifetime Allowance limit has changed since it was introduced on 6th April 2006. With each change made a transitional protection has been introduced to help protect individuals from a potential tax charge. There are now 7 Transitional Protections that could be held.

Tax Year Lifetime Protection Available Deadline Brief LTA Overview
Allowance to apply
2006/2007 £1.5m Primary Protection 5th April 2009 Personalised LTA
Enhanced Protection Unlimited LTA
2007/2008 £1.6m
2008/2009 £1.65m
2009/2010 £1.75m
2010/2011 £1.8m
2011/2012 £1.8m
2012/2013 £1.5m Fixed Protection 5th April 2012 LTA fixed at £1.8m
2013/2014 £1.5m
2014/2015 £1.25m Fixed Protection 2014 5th April 2014 LTA fixed at £1.5m
Individual Protection 2014 5th April 2017 Personalised LTA range between £1.25m – £1.5m
2015/2016 £1.25m
2016/2017 £1m Fixed Protection 2016 5th April 2016 LTA fixed at £1.25m
Individual Protection 2016 5th April 2019 Personalised LTA range between £1m – £1.25m
2017/2018 £1m
2018/2019 £1.03m


Can I contribute with Transitional Protections?

If you hold certain Lifetime Allowance Protections and make a contribution it will revoke your protection. Without this protection you will pay tax on any benefits crystallised above the Standard Lifetime Allowance.

Can ContributeNo Contributions permitted
Primary ProtectionEnhanced Protection
Individual Protection 2014Fixed Protection
Individual Protection 2016Fixed Protection 2014
Fixed Protection 2016
How is the Lifetime Allowance calculated?


BCE Event One
Bill crystallises benefits with a capital value of £150,000 on 1st August 2006. The standard lifetime allowance at that point is £1.5 million, so the percentage used up is 10%.

£150,000 = 0.1 *100 = 10% LTA

If Bill had not crystallised any other benefits previously, he will have 90% of his lifetime allowance still available for the next BCE.

BCE Event Two
This time Bill crystallises’ a further £450,000 on 1st August 2010 when the standard lifetime allowance is £1.8 million.

£450,000 = 0.25 *100 = 25% LTA

So Bill has used up a further 25% of the standard lifetime allowance.
In total Bill has used up 35% (10% + 25%) of his lifetime allowance.
Bill has 65% of the standard Lifetime Allowance still available.

Using 2018/2019 Lifetime Allowance of £1.03m will give him the ability to crystallise a further £669,500. Anything crystallised above this amount will incur a tax charge.

What is enhanced Protection?
This applies to members who wanted full protection from the lifetime allowance charge when they come to take their benefits. Anyone who selected enhanced protection had to stop paying into any money purchase scheme.

If you had pension rights before 6 April 2006 you could have applied for enhanced protection. The closing date to apply for enhanced protection was 5 April 2009.

While you have enhanced protection you don’t pay the lifetime allowance charge if your pension saving is more than the lifetime allowance. Whilst you have enhanced protection you will not be affected by the reduction in the lifetime allowance in relation to the lifetime allowance charge. But if you do not have lump sum protection then when you take benefits your maximum total tax-free lump sum will be 25 per cent of the reduced lifetime allowance of £1.5 million.

If you have enhanced protection you are not entitled to fixed protection.

What is Primary Protection?
This can be used by members who had a benefits value on 5 April 2006 which exceeded the Lifetime Allowance of £1.5 million. These members could register their own personal lifetime allowance (PLA). This is expressed as a primary protection factor which will be used to calculate the member’s PLA when benefits are taken date. Any amounts in excess of this will be subject to a lifetime allowance charge. Members could still contribute to their pension with this protection.

Both protections could have been applied for by member of a pension scheme to protect themselves.

If you have primary protection you are given a lifetime allowance enhancement factor. This is added to the normal lifetime allowance. So if, for example, you had built up rights of £3 million (twice the normal lifetime allowance on 6 April 2006) you would have an enhancement factor of +1. This means you could take benefits worth twice the normal lifetime allowance without paying the lifetime allowance charge.

With primary protection the amount of your protection used to increase in line with the normal lifetime allowance but when the lifetime allowance reduced to £1.5 million the amount of your protection stayed the same, as your protection is linked to the previous lifetime allowance of £1.8 million.

If you have primary protection you are not entitled to fixed protection.

What is Fixed Protection?
On 6 April 2012 the lifetime allowance for pension savings reduced to £1.5 million from the previous level of £1.8 million. As pension scheme members may have already built up savings of more than £1.5 million or have planned to do so in the expectation that the lifetime allowance would not reduce from the current level, there was a new form of protection called ‘fixed protection’.

Members had up till 5 April 2012 to apply for Fixed protection. This allows you to take benefits worth up to £1.8 million without paying the lifetime allowance charge.

What is Fixed Protection 2014?
Fixed protection 2014 will work in a similar way to the existing Fixed Protection regime introduced in April 2012. By holding Fixed Protection the individuals Lifetime Allowances will be fixed at £1.5million.

Clients must apply by 5th April 2014. Any size fund can apply. Clients can not have fixed protection 2014 if you already have primary, enhanced or fixed protection.

Lifetime Allowance Protection 2016

The Lifetime Allowance dropped to £1 million on 6th April 2016 from £1.25 million. HMRC have confirmed that two new Lifetime Allowance protections would be available to provide protection against the reduction.

What is Fixed Protection 2016 (FP16)?
FP16 will allow you to retain a LTA of £1.25m but you cannot make any further pension contributions after 5 April 2016. Making a contribution would revoke your protection and reset your Lifetime Allowance to the standard £1m. This protection has the same characteristics as Fixed Protection 2014.

What is Individual Protection 2016 (IP16)?
IP16 will provide you with a personalised Lifetime Allowance. This will equal the value of all your pensions at 5 April 2016, subject to a maximum of £1.25m. Your pension must be worth more than £1m at 5th April 2016. Further contributions can still be made.

Example One

  • If your pension is valued at £1.2m as at 5 April 2016 and you obtain individual protection
  • Your Individual Lifetime Allowance is £1.2m.
  • Should your fund then grow to £1.3m (by growth or extra contributions), you will incur a lifetime allowance charge on the excess of £1.2m (£100,000)

Example Two

  • If your pension is valued at £1.4m as at 5 April 2016 and you obtain individual protection
  • Your Individual Lifetime Allowance is £1.25m.
  • Should your fund then grow to £1.6m (by growth or extra contributions), you will incur a lifetime allowance charge on the excess of £1.25m (£350,000).
How do I apply for Transitional Protections?

It is still possible to apply for Individual Protection 2016. To do so you must register on the HMRC Gateway Service online.

How are pension funds dealt with on death?

Any individual can inherit unused drawdown funds or uncrystallised pension funds on the death of the member to provide a drawdown pension or pay a lump sum death benefit.

If the SIPP holder dies before age 75 the lump sum or pension payments can be paid without any tax charge if paid within 2 years of date of death.

If the client dies after the age of 75 the lump sum death benefit will be paid with the reduction of emergency rate tax or if a pension is provided any income payments will be at the beneficiaries’ marginal rate.

Age at deathCrystallisedUncrystallised
Below age 75Can pass on completely tax free to any beneficiary as a lump sum or drawdown pensionCan pass on tax free to any beneficiary as a lump sum or as a drawdown pension (up to the lifetime allowance)
Above age 75Any beneficiary can receive the death benefits as a pension or lump sum. Any income drawn down is taxed at their marginal rate and lump sums are also taxed at their marginal rateAny beneficiary can receive the death benefits as a pension or lump sum. Any income drawn down is taxed at their marginal rate and lump sums are also taxed at their marginal rate

Below age 75
Where the death of the member or beneficiary occurred before age 75 any payments of income withdrawal to the beneficiary or successor can be made tax-free providing the funds are designated within a two-year period.

If not designated with 2 years it will be taxable at the beneficiary’s marginal rate as they receive the funds.

Any individual can inherit unused drawdown funds or uncrystallised pension funds on the death of the member to provide

  • a drawdown pension or pay a lump sum death benefit.

Both options will be paid tax free to the beneficiaries if designated within 2 years (2 years of us knowing/being notified of the death). If designated after 2 year period it will become taxable at marginal rate of beneficiary.

If the beneficiaries are to receive the death benefits through a pension this will be via a Flexi-Access Pension. (It is no longer only financially dependant beneficiaries that can take the proceeds as a pension).

Dependant Flexi Access drawdown pension – Defined Dependant
Nominee Flexi Access drawdown pension – Person who is not a dependant
Successor Flexi Access drawdown pension – next in line

It’s important to note that a tax charge will apply to any lump sum death benefit payable at date of death in excess of the Lifetime Allowances for uncrystallised funds unless Transitional Protection applies.


Over 75
If a client dies over the age of 75 the beneficiaries have two choices.

  • Beneficiaries can receive a pension that will be taxed at their own marginal rate.
  • Beneficiaries can receive a lump sum minus a tax charge at the beneficiaries marginal rate

If a payment is made to a Trust or a Company a Tax Charge of 45% will be taken prior to the benefit being paid.

Can a member nominate who receives the death benefits?

The pension member can nominate who will receive the death benefits by completing an Expression of Wish Nomination form.

What if the client dies without completing an Expression of Wish form?

If a member dies without completing a valid beneficiary nomination form we will be required to request a copy of the Will. In this scenario we would expect to be contacted by the deceased member’s solicitor or Executors of the Estate to obtain instructions on how to proceed. Proceeds can not be paid as a nominee pension if there is the dependants of the deceased.

How are Payments into Trust or a company treated?

The government has confirmed that from April 2016 taxable lump sum death benefits will be subject to tax at the recipient’s marginal rate of income tax. Where the recipient is, for example, a trust or a company and so does not have a marginal rate the 45% charge will continue to apply.

What is a Death Benefit Charity Lump Sum?
  • Tax free lump sum
  • Must paid to a registered charity
  • Charity uses the funds for charitable purposes (otherwise it will be classed as an unauthorised fund)
  • Payment not tested against LTA
  • Tax free lump sum as long as member (original member) has no dependants
  • Scheme Administrator can not nominate a charity
Will the Money Purchase Annual Allowance be triggered by receiving a beneficiary pension?

The MPAA is not trigger by receiving income that is produce by a beneficiary/nominee/successor Flexi Access pension fund.

As a beneficiary how can I reclaim tax?

If you fill in a Self Assessment tax return each year, you’ll get a refund when you’ve sent your return.

If you don’t, the form you fill in to claim your refund depends on whether the payment:

  • Form P50Z(DB) if you used up the pension pot and you have no other income in the tax year
  • Form P53Z(DB) if you used up the pension pot and you have other taxable income
  • Form P55(DB) if you didn’t use up the pension pot and you’re not taking regular payments


You can get a divorce if you have been married at least a year and a one day and your relationship has irretrievably (permanently) broken down. There is only one grounds for divorce- irretrievably break down (this means that there is no possibility of reconciliation). A person must prove this by stating adultery, unreasonable behaviour, two years separation with consent, five years separation without consent or desertion.

In simple terms, a marriage must be legally recognised in the UK, and the parties must be resident in England or Wales.

There are 3 main steps to getting divorced:

  • File a divorce petition – you have to apply to the court for permission to divorce, and show reasons why you want the marriage to end. (as above). That person is the Petitioner.
  • Apply for a decree nisi – the other party is called the Respondent. They must file an Acknowledgement of Service following which the Petitioner then files a Statement in Support of their Petition along with an application for Decree Nisi. This will then be given by the Court so long as there are no discrepancies in the paperwork.
  • Apply for a decree absolute – this legally ends your marriage – you need to wait until 6 weeks have elapsed after you get the decree nisi before you can apply. However, it is usual for much more time to pass as the parties need to resolve the financial matters. There can often be tax advantages to remaining married and especially where there are pensions, and SSAS and SIPP’s, it is important to delay the decree absolute until any pension sharing orders have been implemented.
What is Financial Remedy (previously known as Ancillary Relief)

It is hoped that the parties will be able to reach an agreement about the finances. They will then agree the terms of a Consent Order which is filed at the Court. If not then one party will make an Application for a financial Remedy (Form A) and this starts a court timetable ending with various court hearings, and ultimately a Judge will impose an Order on the Parties.

As part of the process (either the parties give voluntary disclosure of all assets, including pensions, or they are obliged to under the court timetable) pension assets must be identified and valued. The solicitors representing in a divorce will have to agree what is to be done with them as part of the financial settlement.

There are 3 options available:
1. Offsetting the pension against other matrimonial assets
2. A pension attachment order (formerly known as earmarking)
3. A pension sharing order

What is Offsetting?

Offsetting is one spouse retains the pension and the other is awarded or retains matrimonial assets which are considered to be of equal value. Most commonly the pension is offset against the value of the marital home, these being the most valuable of all the matrimonial assets.

What is Attachment (Earmarking)?

An attachment order is a direction from the court which obliges the trustees of a pension scheme to pay benefits directly to an ex-spouse, rather than the member spouse.
The order may be made against one or more of the following pension benefits:
1. The pension commencement lump sum
2. The member’s pension
3. The spouse’s death-in-service lump sum

The main problems are:

  • The order only comes into effect when benefits are taken – this is the member’s decision and it can be delayed to suit them (even if they are just being diffcult)
  • Similarly the member spouse can choose the format of benefits, so if the order applies to the PCLS, the member can choose not to take it (unless specifically directed otherwise in the order)
  • Any pension benefits will be taxed as belonging to the member. This is particularly onerous if the member is a higher rate taxpayer and the ex-spouse is not.
  • The order may lapse in the event of the member’s death or on the remarriage of the non-member spouse.
What is a Pension Sharing Order (PSO)

Pension sharing has the major advantage over attachment of allowing a clean break between parties. Under a sharing order the pension asset into parts, and one part is legally transferred to the other spouse. It is specified as a percentage. The receiving spouse now has complete control over their part of the pension and may take benefits as and when it suits them. There are three ways in which a sharing order may be implemented:

1. The ex-spouse may be offered membership of the pension scheme
2. The ex-spouse may be offered a transfer to their own pension plan
3. The trustees may choose to offer both options

Since December 2000 sharing has commonly been considered the most favourable option after offsetting.

Sharing terminology

Pension credit – this is the amount of pension awarded to the ex-spouse.

Pension debit – this is the amount of pension the member will lose from their own pension.

Pension Sharing Order/Consent order

Pension Sharing Order – Court has determine asset spilt
Consent Order – Parties have mutually agreed

Once the divorce has been sealed by a court we will receive information from the clients solicitors on the Pension Sharing Order/Consent order.

Pension Sharing Order – official Court document
Consent Order – letter from the solicitor

Both orders will contain an Annex. The Form P1 will be sent to us once the Court has ordered a pension to be spilt. This form must be sealed for this form to be legally binding. It will be stamped by the court and be signed by the relevant parties and their solicitors, if they have them.

The specified percentage of the pension fund to be transferred out will be stated under section C part 5. Section D will state how the charges that we make will be divided between the parties involved.

The Order will not take effect until Decree Absolute has been granted. We must request a copy of the certificate proving decree absolute.

Pension Sharing Timescales

The Pension Sharing Order takes effect from one of the following dates. This is detailed on the Pension Sharing Order Annex Form.


a) the date on which the Decree Absolute or Nullity of marriage is granted, or the Final Order of Dissolution or Nullity of Civil Partnership is made;

b) 28 days from the date of this order or, where the court has specified a period for filing an appeal notice, 7 days after the end of that period

c) Where an appeal has been lodged, the effective date of the order determining that appeal.

Pension Provider will not send any funds until 35 days has passed from the date we receive the Form. This is due to the parties may lodge an appeal.

Can loans be made from my SSAS?

HMRC rules permit SSAS to make loans to third parties, provided they are prudent, secure and on commercial terms. However, loans to members (or those connected to members) are not permitted and any such loans made will be taxed as an unauthorised payment.

Loans to unconnected parties

Loans can be made to individuals as long as they are not to a connected party.

Connected parties include

  • SSAS Member
  • Member’s spouse.
  • Member’s parents.
  • Member’s children.
  • Member’s Sibling

Although the loan must be “secure”, there is no formal requirement for security to be taken. It is for the adviser and client to decide whether they want to take security.

Loans to my company?

Loans can also be made to Sponsoring employers, these are classed as Loanbacks.

Loanbacks can be made to the Sponsoring Employer or a company connected with the SSAS’s Sponsoring Employer, subject to the requirements below.

Maximum loan is 50% of the SSAS value. Where a second of subsequent loan is requested, the maximum still starts at 50% of the total SSAS value but, having worked out the 50%, we must deduct what is outstanding on any existing loans to arrive at the scope for a further loan.

What is minimum interest rate for SSAS loans?

The rate of interest on the loan must be a minimum of 1% above the average base lending rate of 6 clearing banks:

  • Bank of Scotland
  • Barclays
  • HSBC
  • Lloyds TSB
  • National Westminster
  • Royal Bank of Scotland

Rounded up to the nearest 0.25%

What is the maximum loan length?

Loan length is for a Maximum of 5 years (can be rolled over once).

Regular loan repayments of capital and interest must be made at least annually. The capital cannot just be repaid at the end of the term.

Do the loans have to be secured?

Loan must be secured by means of a 1st legal charge over an asset owned by the borrower (or any other party prepared to grant such a charge) of at least equal value to the loan outstanding at all times.

  • We must have a 1st legal charge over this security.
  • The 1st legal charge must be drawn up and registered by their solicitor. Evidence of the registration must be provided/solicitor confirmation received this has been done.
Overall Fund Value £600,000
Investment £250,000
Property £250,000
Value of Existing Employer Loanback £100,000

50% of fund value £300,000 minus existing loanback of £100,000. Leaves max amount for new loan to employer as £200,000.

What are the advantages of using a SSAS or SIPP to purchase land or property?

There are a number of tax advantages where a SSAS or SIPP is used to purchase a commercial property or land. These include:

  • The rent received by the pension scheme is not subject to income tax.
  • If the property is sold there is no Capital Gains Tax liability.
  • In most circumstances there will be no liability to Inheritance Tax on death.
What are the disadvantages of using a SSAS or SIPP to purchase land or property?

Purchasing property/land could make up a large proportion of the scheme investments so the scheme may not be appropriately diversified.

Property is considered illiquid as cannot always be immediately sold, or sold for the ‘right’ price. What happens if the member wishes to transfer out or wants to take benefits.

In order to generate good returns a regular rental income is needed and there is therefore reliance on having a tenant.

Property purchases are complex and can be costly both initially and throughout the investment (maintenance charges).

What type of property/land can a SSAS or SIPP purchase?

Hartley Pensions will only allow commercial property to be purchased. Residential property is regarded as taxable property and for that reason is not allowed.

Commercial property includes offices, factories, hotels, care homes, shops, prisons and student accommodation (subject to conditions).

  • If part ownership of a hotel allows the member to stay in the hotel (either the part they own or any other room), that is “residential”. But if part ownership gives no preferential rights, it is “commercial” and allowed.
  • If an entire hotel or inn is owned, that is acceptable i.e. “commercial”.
  • Halls of residence are allowed if purpose built
  • Residential homes for children, the elderly, the sick etc, are allowed.
  • A hospital or hospice is allowed.
  • Prisons are allowed
  • If there is a shop with a connected flat above it, that is classed as “residential” but will be allowed if it is a condition of the lease that the shopkeeper lives in the connected accommodation.

HMRC has also clarified that if a commercial property investment is converted to residential, the investment can continue to be held directly within the SIPP or SSAS whilst the conversion is taking place, but it must be sold before it becomes habitable eg “Certificate of Habitation” is issued.

What type of property cannot be held by a SSAS or SIPP?

Most schemes do not permit pension schemes to hold residential property as this is classed as taxable property and leads to considerable tax charges (unless held through a genuinely diverse commercial vehicle).

There are some exceptions such as a caretaker’s flat or flat above a shop (the person occupying the property cannot be a member of the scheme or connected with a member of the scheme).

A property or land that is being converted to residential use or having a residential property being built on it as long as the asset is disposed of before it becomes habitable.

  • A building or structure that is used or is suitable for use as a dwelling.
  • It includes land associated with it eg garden.
  • Any building classified as “Residential” under Building Regulations is not allowed – and vice versa i.e. if it is not classified by Building Regs as being “residential” then it is classed as “commercial”.
  • A beach hut is residential.
  • Individual student lets are not allowed
  • Timeshare is not allowed.

We will also not on any overseas property which will not be on a UK land registry and we cannot expose the scheme to any liability under local taxation laws

How can a SSAS or SIPP purchase property?

A SSAS or SIPP is able to purchase a suitable property from a third party, an employer or a member of the scheme. Where purchased from a ‘connected party’ (employer or the member for example) an independent valuation must be carried out to ensure the transaction is carried out at ‘arm’s length’ and the pension scheme does not lose-out.

Once a property is owned by the pension scheme it can be rented out to the employer but again this needs to be on an arm’s length basis so requires an independent valuation and a lease on commercial terms.

What is the maximum Loan a SIPP/SSAS can receive?

The scheme may have sufficient assets to purchase the property outright but if not can borrow additional monies to meet the purchase price.

A SIPP/SSAS can borrow funds for any purpose providing that the scheme administrator/trustees of the plan are satisfied that the borrowing will benefit the scheme.

A SIPP/SSAS can borrow up to 50% of the scheme’s assets before the borrowing has taken place. A SIPP/SSAS can borrow funds from any individual, company or financial institution whether or not they are connected to the scheme. The transaction must be made on an arm’s length basis.

Examples of maximum borrowing allowed for property purchases
Example One
Overall Fund Value £600,000
Investment £250,000
Cash £350,000

Max loan/borrowing is 50% of fund value = £300,000.


Example Two
Overall Fund Value £400,000
Investment £250,000
Property £250,000
Existing Loan/ borrowing -£100,000

50% of fund value £200,000 minus existing loan/ borrowing of £100,000. Leaves max amount for new loan to as £100,000.


Example Three
Overall Fund Value £350,000
Investment £250,000
Property £350,000
Existing Loan/ borrowing -£250,000

50% of fund value £175,000. No additional borrowing allowed as existing loan is more than 50% of the fund. This does not create an unauthorised payment, when the loan was first calculated the fund value was enough to support the borrowing amount.

Key Point
Loans are classed as a double negative! It is a negative against the fund value used to produce an overall fund value. Calculate the max loan amount of 50% using the fund value. Then subtract existing loans. The figure you are left with is the new max amount of new borrowing allowed.

Taking Benefits when holding property

When owning property in pension funds it is important to remember they are not easily convertible to cash and funds cannot be partly withdrawn. If the entire fund was made up of property investments then its sale would be the only option to take 25 per cent of your fund as a lump sum at retirement.

What is a Special Purpose Vehicle (formerly known as box companies)

Hartley Pensions will set up a Special Purpose Vehicle that has the single purpose  of holding legal title to the property owned.  The properties will become vested in a client specific scheme which will be set up and run for each pension arrangement.

If the owner of the property is a SPV, liability is ring-fenced from the trustees personally and also from other assets of the pension fund. If a claim for damages etc was successful, liability for payment would rest with the SPV, whose only asset is the property it owns.


Can a property be bought from a connected party?

Any Property sales to connected parties i.e. husband selling property to wife, we must ensure that we receive a 3rd party valuation. The SIPP/SSAS can pay for the valuation. A valuation must be sought to ensure that the SIPP/SSAS is getting a fair deal in the sale or purchase.

Non payment of rent by a connected party can be deemed as an unauthorised payment. Arrears must be paid immediately.

How is Rental Income classed?

Rent received into the SIPP/SSAS is classed as an investment return. Please note that the Property could be part of a crystallised or uncrystallised fund. The rent received will either increase the crystallised or uncrystallised fund or even a percentage into each!

The SPV as the landlord can be instructed to take legal action on the tenant if non payment continues. Costs can be reclaimed against the SIPP.

Other costs charged to the SIPP/SSAS

When purchasing a property other costs might arise that the SIPP/SSAS can pay for. Examples of these could be Solicitors fees (will include search fees, reports etc), independent valuations, stamp duty tax charges and other purchasing costs.

Can Bills/Invoices be paid by SIPP/SSAS funds?

The SIPP/SSAS can pay for certain bills/invoices that are related/benefit to the property. All bills/invoices must have the address of the property held within the SIPP/SSAS.

Bills/invoices that are for tangible or movable objects can not be paid for by the SIPP/SSAS.

Renovations to the property can be paid for by the SIPP/SSAS. The renovations must be for the benefit for the property. If the renovations are for the conversion from commercial property to residential property it must be sold prior to the Property being habitual.

Can a SIPP/SSAS Spilt Property Purchases?

Sometimes properties will be bought by more than one client. Properties can be purchased through a number of variations.

  • Syndicate of pensions. All pensions need to be with Hartley Pensions Limited. Clients can own a proportion of the property each in their own SIPP.
  • One client can purchase a percentage through their SIPP and also own a percentage personally.
Do we use a panel of property professionals?

Hartley Pensions do not have a panel of property professionals such as solicitors, valuers etc. The member can appoint whoever they wish to act on behalf of their pension arrangement.

What up to date information/documentation to we require for our records?

To ensure that our records and kept up to date  and to comply with regulations we require the following information/documentation on file;

  • A fully signed lease
  • Up to date property insurance documentation
  • Property valuation
How often do we require property valuations?

For our properties we require full valuations to be carried out at least every 3 years by a RICS chartered valuer. Any fees occurred from producing the valuation can be settled by your pension on receipt of an invoice from the valuer.

Even though we require a value every three years we can accept them on a more frequent basis if you wish.

If a valuation is not received within a three year period we reserve the right to contact an independent value to carry out the value on you behalf with the charges being returned back to the pension.


Capital Adequacy

Hartley Pensions Limited are in full compliance with the latest FCA capital adequacy rules that came into force affecting SIPP providers.

How it affects you ...