# RPSM11104530 - Technical Pages: Lifetime allowance: Valuing benefits on BCEs: Lifetime annuity purchase - BCE 4: Amount crystallising when purchase is from uncrystallised funds

## Calculating the amount that crystallises through BCE 4 where a lifetime annuity is purchased from uncrystallised funds

 [s216(1), BCE 4]

The capital value of the lifetime annuity contract crystallising for lifetime allowance purposes is easily established where purchased from uncrystallised funds. It is the cost of purchasing the lifetime annuity from the insurance company.

The legislation refers to this as the sums and market value of the assets applied in purchasing the lifetime annuity.

Where a chargeable amount arises, any lifetime allowance charge paid by the scheme administrator effectively forms part of that chargeable amount. The amount crystallising through BCE 4 will be the actual amount used to purchase the lifetime annuity (and related dependants’ annuity), net of any deduction made by the scheme administrator to cover any lifetime allowance charge due. The chargeable amount will be what crystallises (net) through BCE 4 (and any other BCE), over and above the member’s available lifetime allowance, plus the charge paid by the scheme administrator.

### Example

Anne is aged 60 and has benefits worth £200,000 held as uncrystallised funds in a money purchase arrangement.

On 23 July 2006 she draws benefits from half her uncrystallised funds. She takes the maximum pension commencement lump sum (£25,000) and uses the remaining £75,000 to secure a lifetime annuity contract through the open market option.

At that point a lifetime allowance test is triggered. There have been two BCEs on that date. These are BCE 6 - the payment of the pension commencement lump sum and BCE 4 -the purchase of a lifetime annuity.

The scheme administrator calculates the capital value of the benefits crystallised on the date as £100,000. This is based on the actual lump sum paid (£25,000) and the £75,000 cost of purchasing the lifetime annuity. This represents 6.66% of the standard lifetime allowance for the 2006/07 tax year (£1.5 million).

### Purchase of a joint-life annuity contract

 [s216(1), BCE 1][Para 4(1), Sch 32][Paras 31 and 32, Sch 10, FA 2005]

Where a dependant’s annuity is purchased under the same contract as a lifetime annuity (a joint-life annuity), or a dependants’ annuity is purchased that is deemed to be related to the purchase of a particular lifetime annuity contract (see RPSM09101720), the combined purchase price of the joint-life contract or those two contracts crystallises through BCE 4.

So all the sums and market value of the assets applied in purchasing the joint-life annuity or lifetime annuity and related dependants’ annuity are the amounts crystallising through BCE 4. This also means that both elements of the annuity provision may be counted when calculating the maximum amount that can be treated for tax purposes as a pension commencement lump sum.

 Glossary (RPSM20000000)