Tax information and impact note published on abolishing the pensions lifetime allowance

HM Revenue & Customs published a tax information and impact note on 18 July 2023 setting out the abolition of the lifetime allowance for pensions from the 2024 to 2025 tax year¹. The measure was announced at Spring Budget 2023 and, from 6 April 2024, abolishes the lifetime allowance from pension tax legislation¹.

The note states the measure applies to all members of registered pension schemes¹. It limits the total amount of tax-free cash an individual can receive to a maximum of £268,275, unless they hold a valid lifetime allowance or lump sum protection¹. It also limits the total amount of lump sums an individual can receive before marginal rate taxation applies to £1,073,100, unless they hold a valid lifetime allowance protection¹. The measure ensures that receipt of regular pension income does not contribute towards either of these limits¹.

The publication included draft legislation of 41 pages, an explanatory note, and accessible versions of both¹. HMRC said a tax information and impact note about the abolition of the lifetime allowance for pensions had been added, and the page was first published the same day¹.

The abolition was one of the measures in the Finance Bill 2023-24, which the House of Commons Library describes as one of the two measures that gathered most interest in the Bill². The Bill's second reading took place on 13 December 2023 and was agreed to on division, by 291 ayes to 54 noes². The Committee of the Whole House stage took place on 10 January 2024 and the Public Bill Committee stage on 16 January 2024². The Bill returned to the floor of the House on 5 February 2024 for Report Stage and third reading, which was agreed to on division by 283 ayes to 39 noes². It received Royal Assent on 22 February 2024 and became the Finance Act 2024².

Why it matters for households

For anyone drawing on a registered pension scheme, the two cash limits take effect from 6 April 2024¹. Tax-free cash is capped at £268,275 and lump sums before marginal rate taxation at £1,073,100, in each case unless the individual holds valid lifetime allowance or lump sum protection¹. Regular pension income does not count towards either limit¹.

The change sits alongside wider pension tax rules, including the annual allowance, which the note does not address. The Commons Library has published a separate research briefing on pension tax relief covering the annual allowance and lifetime allowance².

What happens next

The abolition took effect from 6 April 2024 under the Finance Act 2024, which received Royal Assent on 22 February 2024¹. No further commencement date beyond 6 April 2024 is given in the note¹.