Example

Tracy had fixed protection 2016 and has already used up 45 per cent of her LTA, ie £540,000 (£1,200,000 x 45 per cent), and has previously taken her 25 per cent tax-free cash on crystallisation. 

Her LSA and LSDBA are both reduced by 25 per cent of the amount taken (£540,000 x 25 per cent = £135,000).

Her LSA is reduced by £135,000 to £165,500 and her LSDBA is reduced from £1.2mn to £1,065,000.

Actions for advisers to consider 

Where clients have benefits that exceed the LSA and the LSDBA they should ensure that the option of paying death benefits as beneficiaries’ drawdown is available wherever possible. 

It will be important to check existing nomination forms that this can be undertaken.

This will ensure that, on death under the age of 75, all benefits would continue to be paid free of tax regardless of the value.   

If clients have previously crystallised benefits and not taken their full entitlement to tax-free lump sums then it would be beneficial to apply for a transitional tax-free cash certificate if they have outstanding uncrystallised funds. 

Several providers have developed tools to help you undertake the calculations to establish the remaining LSA and LSDBA when they have already undertaken some crystallisation of benefits, including when that had different types of protection, and these could be used to form part of your next review with clients after April 6 2024. 

Richard Cooper is business development manager at The London Institute of Banking & Finance