HM Revenue & Customs set out on 15 March 2023 that from 6 April 2023 the lifetime allowance (LTA) charge is removed, so that no one faces an LTA charge from April 20231. The same measure limits the pension commencement lump sum (PCLS) to its current maximum of 25% of the current LTA, unless an individual holds valid LTA or PCLS protection1. It applies to all members of registered pension schemes1.
The policy paper also raised four limits from 6 April 20231:
| Limit | Before | From 6 April 2023 |
|---|---|---|
| Annual Allowance | £40,000 | £60,000 |
| Money Purchase Annual Allowance | £4,000 | £10,000 |
| Tapered Annual Allowance | £4,000 | £10,000 |
| Adjusted income for Tapered Annual Allowance | £240,000 | £260,000 |
"This measure ensures that no-one will face a Lifetime Allowance charge from April 2023."
The removal of the charge was a step before full abolition. The LTA was abolished from 6 April 2024 by the Finance Act 2024, according to the Scottish Public Pensions Agency2, and the LTA limit remained at £1,073,1003. Between 6 April 2023 and 5 April 2024, benefits that exceeded the LTA were taxed at the recipient's marginal rate of income tax4. The LTA was replaced by two allowances: the Lump Sum Allowance, standard £268,275, and the Lump Sum and Death Benefit Allowance, standard £1,073,1004. The PCLS cap of £268,275 reflects 25% of the LTA5. Where someone holds LTA protection, the lump sum allowance and lump sum and death benefit allowance are increased6, and higher tax-free cash entitlements are honoured5. The deadline for applications for fixed protection 2016 or individual protection 2016 was 5 April 20256.
Why it matters for households
The change affects anyone drawing on a pension worth close to or above the former LTA, and anyone contributing large amounts. From 6 April 2023 no LTA charge arises, so excess benefits are no longer subject to a charge of up to 55%3. The cap on tax-free cash from your pension and the lump sum allowances means most people can take no more than £268,275 as a PCLS, unless they hold protection5. The higher annual allowance of £60,000 applies from 6 April 2023, and the money purchase annual allowance and tapered annual allowance both rose to £10,0001. The adjusted income threshold at which the tapered annual allowance begins rose to £260,0001. Someone who has already used all their LTA has new allowances of £04. Benefits already in payment are unaffected and continue to be taxed at the recipient's marginal income tax rate6. The lifetime allowance: what changed when it was abolished remains relevant to how past benefit crystallisations reduce the new allowances4.
What happens next
The LTA charge removal took effect on 6 April 2023 and the LTA itself was abolished from 6 April 20241. Transitional arrangements applied to benefits taken before 6 April 20246. The deadline for fixed protection 2016 and individual protection 2016 applications was 5 April 20256. No further dated steps are set out in these documents.
Sources6 cited
- Abolition of Lifetime Allowance and increases to Pension Tax Limits - GOV.UK gov.uk
- Author: u205538 pensions.gov.scot
- Pension Lifetime Allowance Guide | Pension LTA Rules - ii ii.co.uk
- Pension Lump Sum Allowances Guide - ii ii.co.uk
- What is a pension commencement lump sum (PCLS) - ii ii.co.uk
- Abolition of the lifetime allowance | Rothesay rothesay.com
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