Lifetime Allowance
20/08/2023
Further to the government’s announcement in March 2023 that they would scrap the Lifetime Allowance (LTA), draft legislation has now been released to set out how this will work for pension schemes going forward. The LTA charge has already been removed this tax year but, from April 2024 the whole framework of the LTA will also be removed, which has an impact on tax free lump sums.
Key points – Tax Free Lump Sum
- The LTA will be removed from 6 April 2024
- Members will no longer need available LTA to take any benefits.
- Pension Commencement Lump Sums (PCLS) also called tax free lump sums will be limited to 25% of their uncrystallised fund subject to a maximum of £268,275. This will be called the “Lump Sum Allowance”.
- This is the same as the current PCLS limit of 25% of the LTA of £1,073,100, so no uncrystallised individual is currently worse off.
- Individuals with pension protection from previous LTA reductions will be able to receive a maximum PCLS of 25% of their protected fund (pre-6th April 2006 protection will work slightly differently).
- An individual’s remaining Lump Sum Allowance will take account of previous PCLS and tax free amounts the member has received. This means we will need to obtain confirmation of any previous lump sums received before we can make any tax-free payments.
- Members must still crystallise funds to be entitled to receive PCLS.
- Any amounts over the Lump Sum Allowance would be taken as a taxable pension income.
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Email us on enquiries@whitehallgroup.co.uk or call 03302 232 300