Guidance has been released by HMRC on how it will phase in the abolition of the lifetime allowance (LTA) for pensions.
The existing £1,073,100 threshold on the LTA was ended on 05 April, after the change was announced by Chancellor Jeremy Hunt in his Spring Budget 2023.
However, because the legislation is not included in the Spring Finance Bill 2023, the current LTA framework will remain in place until the government fully removes it in 2024/25. This means that pension scheme providers must wait another year for their LTA-related duties to end.
The HMRC guidance states that pension scheme administrators should continue to operate standard LTA checks when paying benefits in 2023/24.
The current rules and charges will apply for any benefit crystallisation events (BCEs) occurring before 06 April 2023, but no LTA charge will arise for BCEs that take place from 06 April onwards. Furthermore, while payments such as defined benefits and lump sum death benefits would usually be subject to a 55% LTA charge, this will be replaced with Income Tax at the recipient’s marginal rate.
As a result, HMRC says that employers will need to update their payroll systems “as soon as possible” and no later than 30 September 2023.
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If you have any questions about the new guidance on the abolition of the LTA and how this may affect you, please get in touch.