HMRC issues interim guidance on removal of UK lifetime pension allowance

It has already been announced that the lifetime allowance charge will be removed in April 2023. However, it is not clear how the interim period between 6 April 2023 and full lifetime allowance removal will work, says law firm Eversheds Sutherland. It notes that the statute book currently contains hundreds of references to the lifetime allowance and abolishing it will be a complex project.

The new guidance instructs administrators to continue to conduct lifetime allowance checks when paying benefits and issuing benefit crystallisation event statements until full abolition arrives. It also confirms that scheme members with valid 'enhanced protections' or 'fixed protections' against the lifetime allowance cap can now accrue further pension benefits, join new arrangements or transfer between schemes without losing this protection. They will also keep their entitlement to a higher maximum pension commencement lump sum which, for those without protections, is capped at GBP268,275.

A further clarification states that lump sums above the lifetime allowance, currently GBP1.07 million, will be taxed at a person's marginal rate rather than at the lifetime allowance charge level of 55 per cent.

The removal of the lifetime allowance should also simplify the process for transfers to qualifying recognised overseas pension schemes, as no lifetime allowance test should be required, says Eversheds Sutherland.

Any future change in government could also impact the practical implementation of the Budget announcement. The Labour party has already said it will reintroduce the allowance, should it win the next general election.

More details around the abolition of the lifetime allowance are expected to come to light in Finance Bill 2023, currently expected to be published on 23 March 2023.

Sources

• Eversheds Sutherland
• HMRC
• HMRC (pension schemes newsletter)
• CIOT
• STEP UK News 16 March 2023: UK government announces abolition of lifetime allowance