The new allowances from 6 April 2024 are:
- A Lump Sum allowance which limits the total tax-free lump sum that can be paid from all the pensions you have. The limit has been set at £268,275 for anyone without Lifetime Allowance protection. It’s the same limit that applied under the Lifetime Allowance rules.
- A Lump Sum Death Benefit allowance that limits the total tax-free lump sum that can be paid from all pensions you have when you die. This limit has been set at £1,073,100 for anyone without Lifetime Allowance protection. It’s the same limit that applied under the Lifetime Allowance rules.
- An Overseas Transfer allowance that limits the maximum tax-free amount that can be transferred out of the UK. This limit has been set at £1,073,100 for anyone without Lifetime Allowance protection.
Each of the three new allowances are adjusted to give you a personal limit that matches the value of the benefits you were allowed before the Lifetime Allowance was removed. If you have a pension scheme with a protected tax-free cash sum, this is also considered when your personal allowances are calculated.
If you have a Lifetime Allowance protection certificate and haven’t already told us about it, please get in touch to let us know.
In the same way that the Lifetime Allowance worked, the value of any pension benefits you’ve already taken is deducted from the new personal allowances so you know how much you have left.
For benefits taken after 6th April 2024, it is the actual tax-free cash paid to you that is deducted.
Where you took benefits before 6th April 2024, it is assumed that you received 25% of the value tax-free from both the Lump Sum and Lump sum and Death Benefit allowances.
For the overseas transfer allowance, it is 100% of the value that is deducted. When benefits are taken as drawdown benefits, it’s only 25% of the value that’s deducted. So it’s important to let us know if that applies to you. When transferring out to an overseas pension scheme, it will be your responsibility to provide evidence that benefits were taken as drawdown and should have a lower deduction.
To give you an example of what it means if you have used up 40% of the standard Lifetime Allowance (£429,240) before 6th April 2024 we would assume:
If you received less than 25% as a tax free lump sum, you may be able to apply for a transitional tax-free amount certificate. This would mean that the amount deducted is the actual tax-free amount you received instead of the 25%.
If you think you may exceed the new allowances then you will need to apply for a certificate before you take benefits for the first time.
Most people are unlikely to be affected by the changes. Follow the questions below to help you decide if you are impacted:
