Amendments To The Finance Act 2024 And Abolition Of The Lifetime Allowance
In our April 2024 Adviser Update, we discussed some of the issues brought about by the new regulations and the fact that they were not working as intended. These were covered in HMRC’s Pension Schemes Newsletter 158 (which can be found here).
HMRC’s Newsletter 163 (which can be found here) confirms that these issues have been addressed in new regulations effective from 18 November 2024 but backdated to 6 April 2024.
The new regulations ensure that:
- The calculation of Scheme Specific Tax-free Cash works as expected and the unintended uplift for clients with fixed or individual protection has been removed. This means that the calculations for all individuals will now be equivalent pre and post April 2024.
- Clients with Enhanced Protection who wish to transfer their benefits will see their protected Lump Sum Allowance (LSA) and Lump Sum Death Benefit Allowance (LSDBA) transferred to the receiving scheme. Their LSA will be based on the maximum Pension Commencement Lump Sum (PCLS) available on 5 April 2023 and their LSDBA will be based on the value of their uncrystallised funds as at 5 April 2024 (less any payments made since those dates).
- Tax free cash sums for clients with Primary Protection or Enhanced Protection, which were greater than £375,000 at 5 April 2006, can now take their protected values without being potentially restricted to £375,000.
- Lump sum death benefits from funds crystallised prior to 6 April 2024 can now be paid without being subject to the LSDBA (because these benefits would previously have been tested against the Lifetime Allowance).
- Clients with a transitional tax-free amount certificate will be required to provide a copy of the certificate to all pension schemes of which they are a member and to notify those schemes if the certificate is cancelled.
- An amendment has been made to the calculation of the ‘previously used amount’ for clients who attained age 75 prior to 6 April 2024. This ensures that any benefit crystallisation events (BCEs) arising at age 75 are excluded from the calculation, but only if the individual has not received a lump sum between age 75 and 5 April 2024.
This last change was not discussed in Newsletter 158 but could be very helpful to clients who reached age 75 prior to 6 April 2024. For many of these clients, the default calculation of the LSA and LSDBA would have left them with lower tax-free cash amounts than previously available under the old Lifetime Allowance rules. Of course, they have the option to apply for a transitional tax-free amount certificate but even with the certificate, some individuals would still be worse off. The removal of the BCEs at age 75 restores parity for the tax-free cash with the pre-6 April 2024 position. However, this change will not apply to clients who received a lump sum after age 75 but before 6 April 2024.
All information is based on our understanding and interpretation of applicable law and legislation.
1. Introduction
2. TOL Recent Enhancements
3. Removal of Adviser Purchase Related Fees
4. Platform Health Check
5. Adding Value to family Businesses
6. LoA Discounted Service
7. Transact – BlackRock MPS Two Years On!
8. Pensions Death Benefits and a Time For Reflection
9. Pensions, IHT Headaches And The Potential For Gifting
10. Finance Act 2024 and Abolition of LTA
11. Interest on cash
12. Transact Events 2025