HMRC’s latest lifetime allowance guidance newsletter includes FAQs and more information on transitional tax-free amount certificates.

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The lifetime allowance charge has not been applied on high value pensions since 6 April 2023. However, the legislation to abolish the charge (cl14, Sch. 9, Finance Bill 2023-24) will take effect only from 6 April 2024. The legislation introduces new terminology and calculations to determine how much of a pension can be accessed tax free. HMRC’s latest lifetime allowance newsletter sets out additional information for taxpayers and scheme administrators.    

Frequently asked questions 

In the newsletter, HMRC responds to a number of frequently asked questions (FAQs) on the following issues: 

  • lump sums and lump sum death benefits;
  • reporting requirements for pension scheme administrators;
  • the overseas transfer allowance;
  • interaction with protections and enhancement factors; and
  • transitional arrangements for those who have crystalised benefits, but have used less than 25% of their lifetime allowance as a tax-free amount. 

Transitional tax-free amount certificates 

Further information is given on applying for a transitional tax-free amount certificate. HMRC considers that most individuals accessing their pension will not require a certificate. Instead, they will be dealt with under the standard calculation set out in the legislation. The certificate is relevant when an individual has already accessed their pension pot and used less of their available lifetime allowance as tax-free lump sums than under the standard calculation. 

To obtain a certificate, an individual member of a pension scheme must provide evidence of tax-free lump sums already taken to their pension scheme, as well as other information. If a certificate is validly issued, it will not be possible for the individual member to then revert to using the standard calculation. 

Changes to legislation 

HMRC intends to amend legislation included in Finance Bill 2023-24. This includes amendments relating to when event 24 applies (this concerns a lump sum payment or lump sum death benefit in relation to relevant benefit crystallisation events) and the operation of the pension commencement excess lump sum. 

HMRC also intends to amend the PAYE regulations to require pension scheme administrators to provide information relating to taxable lump sums under real time information. However, until those regulations are amended, pension scheme administrators should continue to follow the guidance in HMRC’s March 2023 newsletter

HMRC continues to publish information on the upcoming changes and further guidance is expected in future newsletters. 

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