HMRC has released guidance clarifying how it will phase in the abolition of the lifetime allowance (LTA) for pensions.
As announced by Chancellor Jeremy Hunt in his Spring Budget 2023, the current £1,073,100 threshold on the LTA ended on 5 April.
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 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 6 April 2023, but no LTA charge will arise for BCEs that take place from 6 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.