Pensions lifetime allowance guidance newsletter

While the lifetime allowance (LTA) charge has not been in effect since 6 April 2023, legislation in Sch 9, Finance Bill 2023-24 will formally abolish the charge. HMRC’s newsletter summarises some of the changes being introduced. 

Following an announcement at the Spring Budget 2023, the pension LTA is being abolished. Previously, there was a charge of up to 55% on the excess value of a pension over the LTA threshold (£1,073,100 prior to abolition). The value of a pension was tested against the LTA either when an individual accessed their pension through a benefit crystallisation event (BCE), or when the individual reached the age of 75, whichever occurred first. 

The newsletter sets out information on the pension commencement lump sum (PCLS). The PCLS is the amount that a taxpayer can access free of income tax. This is capped at the lower of 25% of the value of their pension fund(s) or £268,275.  

Where individuals are permitted to, and decide to, take more than the PCLS as a lump sum, this is referred to as pension commencement excess lump sum (PCELS) and will be subject to income tax at the individual’s marginal rate. 

HMRC confirms that there is no change to the taxation of beneficiaries of a flexi-access pension or annuity received on death of an individual under the age of 75. These will continue to be received tax free by the beneficiary. The government had previously suggested in a policy paper that the tax-free treatment may change. 

The newsletter also contains information on: 

• the implications of receiving trivial commutation lump sums, winding up lump sums and small lump sums;
• payroll reporting implications of individuals receiving taxable lump sums;
• the availability of lump sum and lump sum death benefit enhancement factors;
• application deadlines for lifetime allowance protections and enhancements;
• changes to the reporting required by scheme administrators to include an additional BCE (event 24). There is a new relevant benefit crystallisation event statement, which will tell the individual how much allowance has been used by an event;
• the administrative process for the taxation of lump sum death benefits; 
• the introduction of an overseas transfer allowance to restrict the amount of pension that can be transferred to a qualifying recognised overseas pension scheme tax free;
• the introduction of member payment charges applicable to the payment of lump sums and lump sum death benefits under a relevant non-UK pension scheme; and 
• transitional arrangements where a BCE has occurred prior to 6 April 2024 to enable individuals to calculate their remaining allowance. 

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