Lifetime Allowance Removal 1. Effective Date and Impact
Published / Last Updated on 27/04/2023
Following discussions with a number of clients on the impact of the removal of the lifetime allowance (LTA) and freezing of the maximum tax-free cash lump sum at £268,275, we have decided to make a series of videos covering some of the more technical points.
- The LTA of £1,073,100 is still in force for tax year 2023/24.
- The LTA is not removed until 06/04/2024 i.e., next tax year 2024/25 and is expected to be passed in next year’s Finance Act 2024. That said, there is a General Election that must be held before 28th January 2025 i.e., in tax year 2024/25 when the LTA is set to be removed and the Labour Party, if elected, have pledged to reintroduce it.
- If you exceed the LTA in the current tax year 2023/24 the LTA remains but there is now a tax charge rate of 0% for exceeding the LTA.
What if I have protection such as Fixed Protection or Personal Protection for all accumulated pension funds or Enhanced Protection for higher tax-free cash lump sums?
- If you were registered by 15 March 2023 – and did nothing between 15 March 2023 and 6 April 2023, you can now start making pension contributions again of the lower of your salary or £60,000 pa without losing your Fixed Protection or Personal Protection.
- Unusual timing but of little consequence: if your protection was registered after 15 March 2023, old rules will still apply, and you will lose your protection if you start making pension contributions again. That said, the lost protection is largely worthless as we are already into excess lifetime allowance 0% tax charge for 2023/24 and it will disappear in 2024/25.
Our view in general is to be mindful of the above rules and perhaps wait until HMRC’s full practice notes are published and you can seek formal advice and guidance.
