The Spring Budget on 15 March 2023 confirmed that the Pensions Lifetime Allowance (LTA) i.e., the maximum value you can build up in pension funds of £1,073,100 was to be scrapped meaning that we can all build up unlimited pension benefits during our lifetime.
The was greeted with roars of approval on the Blue side of the House of Commons but there was a sting in the tail that was not stated by the Chancellor in his Budget Speech but was hidden in the small print.
Pension Commencement Lump Sum (PCLS) using tax free in the UK
We have all been used to the fact that 25% of your pension fund can be taken as tax free cash. This was established when personal pensions were launched on 1 July 1988. Given the removal of the LTA, meaning that for those lucky people that can now build pension funds up in excess of £1,073,100 without incurring a tax penalty, you would have thought that if you build up a pension fund of £2,000,000, you would be able to withdraw 25% i.e., £500,000 tax free (if UK resident). This is not the case.
Pension Lump Sum Cap
In the small print of the Spring Budget 2023, it states that the maximum amount that can with withdrawn as a Pension Commencement Lump Sum is to be capped at 25% of the old lifetime allowance (LTA) of £1,073,100.
This means that the government has now set a precedent in that tax free cash lump sums are now capped, and the new cap will be £268,275.
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