Questions answered on uncrystallised funds and what happens to ISAs when moving abroad
Q My client is aged 73 with uncrystallised funds of £1.2m and no lifetime allowance (LTA) protection. What happens if the client does not take their tax-free cash before age 75?
A The entitlement to tax-free cash continues beyond age 75. At 75, there will be a benefit crystallisation event (BCE). All uncrystallised benefits will then be tested against the client’s available LTA (BCE 5B), which will be £1,073,100. If there is an excess (which is likely in your client’s case), the provider will deduct the LTA charge at that point and pay this to HMRC.
If the client later decides to take their tax-free cash entitlement, for the purposes of calculating the maximum amount available at that time, the BCE 5B test is ignored.
Tax-free cash is then limited to the lower of 25% of the value of the fund and 25% of the percentage of the LTA that was available at that time. If no benefits had been previously taken by the client, this percentage would be 100%. Therefore, assuming the client takes the tax-free cash before the LTA freeze ends, they would still be entitled to 25% of the value of the fund, or 25% of £1,073,100, whichever is less.
Q My client is moving abroad with her son, who is five-years-old. Can my client continue to contribute to her ISA and can funds be added to her child’s Junior ISA once they have moved abroad?
A Dealing with the ISA first, once your client leaves the UK it will no longer be possible for her to put money into her ISA account after the tax year in which she moves abroad, unless she is a Crown employee working overseas. It would be possible for her to keep the account open but she must notify her ISA provider once she ceases to be UK tax resident.
In respect of her son’s Junior ISA, it would be possible for further funds to be added to the account once he has become non-resident in the UK. In addition, once your client has become resident in another country, she ought to seek local tax advice to see what investments need to be declared in their new country of residence and whether the ISAs will be subject to local tax.
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