Abolishing the lifetime allowance
What is changing from 6 April 2024?
LTA hub
For the latest updates on LTA abolishment, FAQs and TTFAC guidelines, please visit our LTA hub on the Nucleus website.
HMRC Newsletter 158
The lifetime allowance was abolished on 6 April 2024. However as you may be aware, there have been some challenges faced by platforms, advisers and clients in navigating the new rules due to delays receiving guidance from HMRC.
On 4 April 2024, HMRC released a newsletter in which it advises some clients to delay taking benefits, or transferring their pension until it can remedy incorrect legislation. The newsletter can be viewed below:
Newsletter 158 — April 2024 – GOV.UK (www.gov.uk)
HMRC advise that certain groups of people should delay action until regulations are passed through Parliament to correct the legislation. Those affected by HMRC’s advice relate to any case which involves:
- scheme specific tax-free cash protection
- a transfer with enhanced protection
- enhanced protection and primary protection cases with protected lump sum rights of more than £375,000
- the payment of a lump sum death benefit from funds which crystallised before 06 April 2024
- any transfer from drawdown to a QROPS
- any transfer to a QROPS which involves pre-April 2006 benefits.
In respect of the above cases, HMRC state that ‘schemes should advise members to request a delay to the payment/defer their request to transfer’. Therefore, if you have a client impacted by the above events, please contact us to agree next steps and to provide confirmation as to whether you wish to proceed with the previously provided instruction.
The abolishment of the lifetime allowance
Tech Talk Finance Bill 2023-24
The new regulations introduced as part of the abolishment of the lifetime allowance have added some extra complexity to tax planning. To help you navigate these pivotal changes, Nucleus Technical Services Director, Andrew Tully, has put together a helpful Tech Talk which you can view via the below link.
Lump Sum Allowance (LSA)
The LSA is set at £268,275 for the 2024/2025 tax year, unless the member has transitional protection. The LSA limits the amount of tax-free lump sums that an individual may receive from all registered pension schemes during their lifetime.
These lump sum payments will also cound towards an individual’s Lump Sum and Death Benefit Allowance (LSDBA) and include lump sums such as:
- Pension Commencement Lump Sums (PCLS)
- Non-taxable element of Uncrystallised Funds Pension Lump Sum (UFPLS)
Any lump sums in excess of the LSA are subject to income tax at the member’s marginal rate.
Lump Sum and Death Benefit Allowance (LSDBA)
The LSDBA limits the amount that can be taken as a tax-free lump sum payable from all of an individual’s registered pension schemes, over a member’s lifetime or following death before age 75. The LSDBA is set at £1,073,100 for the 2024/2025 tax year, unless a member holds transitional protection.
The lump sums that are tested against the LSDBA include:
- Pension Commencement Lump Sum (PCLS)
- Non-taxable element of Uncrystallised Funds Pension Lump Sum (UFPLS)
- Serious Ill-Health Lump Sum, if paid from uncrystallised funds and to an individual under age 75
- Lump sum death benefits, where a member dies under age 75 and the claim is settled within 2 years and funds derived from uncrystallised funds or funds crystallised post 5 April 2024
Any lump sum taken during the member’s lifetime which is within the LSA is tax-free.
If the member passes away before age 75, lump sum death benefits would be tax free if paid within 2 years of the notification of death up to the member’s remaining LSDBA. If the member passes away after age 75, all lump sums would be liable to income tax at the beneficiaries’ marginal income tax rate.
Overseas Transfer Allowance (OTA)
The OTA is a limit on transfers to a qualifying recognised overseas pension scheme (QROPS). The OTA for the 2024/2025 tax year is £1,073,100. If a member exceeds this allowance, they will be subject to an overseas transfer charge of 25%.
Some transfers to a ROPS may already be subject to a 25% overseas transfer charge. The current overseas transfer exclusion requirements are:
- Member and receiving scheme in the same country
- Receiving scheme in European Economic Area (EEA) state or Gibraltar & member resident in United Kingdom (UK) or EEA
- Receiving scheme is an occupational scheme
- Receiving scheme set up by an international organisation
- Receiving scheme is an overseas public service scheme
Where an overseas transfer does not meet the exclusion requirements above, the entire transfer value will be subject to an overseas transfer charge of 25% and will not reduce the OTA.
Transitional arrangements
Transitional Tax-Free Amount CertificatesA Transitional Tax-Free Amount Certificate (TTFAC) is provided by a registered pension scheme, following receipt of complete evidence, to show an individual’s lump sum transitional tax-free amount and lump sum and death benefit tax-free amount.
An individual, or a personal representative, can apply for a TTFAC from a registered pension scheme where the individual is a member or, if the individual is deceased, of which the individual was a member immediately before death.
In order to obtain a TTFAC, the applicant will need to provide complete evidence of any lump sums or lump sum and death benefits in respect of any pension the client has been a member of. The scheme administrator will use this evidence to determine the client’s transitional lump sum tax-free amount and transitional lump sum and death benefit tax-free amount and issue a certificate, or decline the application.
To learn more about TTFAC, please visit our dedicated page.
Please refer to this TechTalk by Andrew Tully for an overview of advice implications. You can find these on pages 9-11.
If a client has utilised 100% or more of their Lifetime Allowance then they have no Lump Sum Allowance or Lump Sum and Death Benefit Allowance.
To determine how much Lump Sum Allowance remains, the previously-used amount of Lifetime Allowance is utilised, assuming a benefit crystallisation event took place on 5 April 2024. The Lump Sum Allowance is reduced by 25% of the previously-used amount.
For example:
If a client has utilised 60% of their Lifetime Allowance via drawdown BCEs, the following calculation takes place:
60% of LTA used = (60% x £1,073,100) = £643,860.
25% of this = (25% x £643,860) = £160,965.
The Lump Sum Allowance is then reduced by this amount:
£268,275 – £160,965 = £107,310.
This means that £107,310 of the client’s Lump Sum Allowance is remaining.
There are different calculations applicable for those clients with a protection certificate, or who are taking serious ill-health lump sums.
The type of protection that a client holds determines what new rules are in place and how the Lump Sum Allowance (LSA) and Lump Sum and Death Benefit Allowance are impacted.
The restriction on clients being unable to take a UFPLS due to holding an enhancement factor has been removed and they will be able to take UFPLS payments from 6 April 2024.
For the following protection types, the standard Lump Sum and Death Benefit Allowance of £1,073,100 is replaced by their personal Lifetime Allowance and the standard Lump Sum Allowance is 25% of this.
| Protection Held | LSDBA | LSA |
| Fixed Protection 2012 | £1,800,000 | £450,000 |
| Fixed Protection 2014 | £1,500,000 | £375,000 |
| Individual Protection 2014 | Personalised LTA amount | 25% of personalised LTA amount |
| Fixed Protection 2016 | £1,250,000 | £312,500 |
| Individual Protection 2014 | Personalised LTA amount | 25% of personalised LTA amount |
For those clients with protection types not outlined above, there are more complex rules in place. Please contact us to discuss these protections if you need any additional information.
The deadline for applying for Fixed Protection 2016 and Individual Protection 2016 is 5 April 2025. Clients can no longer apply for any other forms of protection. All other enhancement factors, such as Pension Credit Factors, cannot be applied for from 6 April 2024.