Policy Insights Webinar Lifetime Allowance Abolition Q&A

Following a recent Policy Insights Webinar on the Lifetime Allowance Abolition, presenter Isabel Freedman, Policy Advisor at HMRC has provided answers to some of the questions that we didn’t have time to answer during the webinar. Isabel also kindly re-recorded her presentation due to a few sound issues which can be viewed here.

Q. What about people with existing LTA protections - will they continue to apply?
Yes protections will continue to apply. Where members had a protection entitling them to a higher lump sum on commencement of their pension, or to a higher overall LTA, from 6 April 2024 these same increases will be applied to their lump sum allowance and to their lump sum and death benefit allowance.

Q. I know you have said in advance of April for PCELS, but the industry needs the time to be able to build the changes into platforms and outputs. How will HMRC support providers in making these changes and in providing dispensation if we can't make the changes in time.
Confirmation of the changes for the PCELS were included in the February LTA Guidance Newsletter published on 13 February. This can be found here: Lifetime allowance guidance newsletter — February 2024.

Q. The calculation of the 'permitted maximum' of the pension commencement excess lump sum appears unclear, when will we receive guidance or clarity as to how this permitted maximum should be calculated?
As confirmed in the February LTA Guidance Newsletter the ‘permitted maximum’ for PCELS will be removed from legislation. This is because the limit had unintended consequences dependent on the way in which members sequenced their benefits.

Q. For the Standard Transitional Calculation, how will this work for members with Transitional Protection? Will this use a different LTA?
Yes. The standard transitional calculation should be applied to a member’s protected allowances. For instance, if the member holds Fixed Protection 2016, they have used 80% of their LTA and the standard 25% deduction applies, then their available lump sum allowance would be £62,500 and their available lump sum and death benefit allowance would be £1,000,000.

Q. The transitions mentioned have been regarding the current tax regime going to the new legislations, but have transitions for pre A-day also been accounted for?
Yes. The calculations for the transitions for pre A-day have been incorporated into paragraph 20 of Schedule 36 to Finance Act 2004.

Q. If someone has already used 100% of LTA are they allowed to take a lump sum up to £268,275 tax free now please?
Individuals who have used 100% of their LTA will have no available allowances from 6 April 2024 under the standard transitional calculation. However, where applicable they may apply for a transitional tax-free amount certificate.

Q. Is the intention for the one-off 2024/25 statements to give members LTA% used up or a converted LSA/LSDBA amount used up under the scheme?
The one-off statements issued under paragraph 130 of Schedule 9 to Finance Bill 2023/2024 should state the members’ LTA% used.

Q. You mentioned a certificate for a transitional allowance - why would this be required and under what circumstances?
Transitional tax-free amount certificates can be applied for where the member believes, and can provide evidence, that they have taken less of their LTA% used as at 6 April 2024 as tax-free amounts than assumed under the standard transitional arrangements.

Q. Do members need a transitional certificate from each registered pension scheme of which they are a member?
No. Members only need to apply to one registered pension scheme of which they are a member, but the evidence they provide must cover all pension benefits taken from any registered pension scheme of which they are a member.

Q. Under the transitional tax-free lump sum provisions, where a lump sum was taken when the LTA was £1.8m (and subsequent), will the lump sum taken be expressed as a percentage of the LTA or will the full lump sum taken be deducted from the LTA.
The transitional tax-free amount certificate should show the actual monetary amount of the lump sum allowance and lump sum and death benefit allowance used.

Watch the recording of the Lifetime allowance abolition policy insights webinar.