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At the Spring Budget on 15 March 2023, the Chancellor announced that the government would remove the Lifetime Allowance charge from 6 April 2023, before fully abolishing the Lifetime Allowance (LTA) in a future Finance Bill.
On 18 July 2023, further details emerged. A policy paper was published alongside draft legislation. This clarified that the lifetime allowance and most benefit crystallisation events (BCE) would be removed.
At Autumn Statement 2023, the government reiterated that the abolition was still going ahead on 6 April 2024, publishing a policy paper confirming the final rules. This was followed by the publication of a Finance Bill on 29 November 2023, which provided further draft legislation.
The new policy paper and draft legislation clarify the changes that will abolish the LTA entirely and confirms the tax treatment of pension savings.
An overview of the new rules
Extensive change to legislation is needed to abolish the LTA and for those working in the industry, there are some important features. However, most individuals will find little change to their available tax-free cash or how their pension benefits are taxed.
Below is a summary of some of the main changes that come into effect from 6 April 2024:
Areas of previous concern
When the original policy paper and initial draft legislation were published in July, a couple of areas raised some concerns within the industry. The new draft legislation and policy paper have provided some welcome new details:
With 6 April 2024 fast approaching, clarity on the new rules was much needed. The change in approach to both death benefits and small pots will also be welcomed.
Since the removal of the LTA charge, many high net-worth individuals have looked again at pensions as an estate planning vehicle and restarted pension contributions. For these individuals, the new rules only heighten the importance of making sure death benefit nominations are in place and name all individuals that they may wish to eventually benefit.
This is because tax free lump sums on death will now be limited to the remaining ‘lump sum and death benefit allowance’. However, if a beneficiary qualifies as a ‘nominee’, they will be eligible for beneficiary’s drawdown or an annuity, thereby allowing a fund of any size to potentially be received tax free.
This is a complex area with over 100 pages of draft legislation in the Finance Bill. Due to the tight timescales, HM Revenue & Customs (HMRC) couldn’t consult on the draft Finance Bill before publication. Ongoing discussions with the pension industry will continue and the Bill includes power to lay regulations to correct any drafting errors.
While the substance of the measures are set some detail may change between now and 6 April 2024. We will provide further updates of any changes, or more detailed aspects of the new rules, as further details become known – including any potential financial planning implications.
Please note this is for general information only and is based on LV=’s understanding of the relevant legislation and regulations and may be subject to change.
The tax treatment of benefits depends on individual circumstances, and may be subject to change in the future.
The use of this document is at your own risk, and the content should not be used for the provision of professional advice.
LV= accept no liability for any damages, losses or causes of action of any nature arising from your use of this document.