Lifetime allowance charge provisions amended for tax year 2024-25 onwards following abolition of the lifetime allowance charge

The Pensions (Abolition of Lifetime Allowance Charge etc) (No. 2) Regulations 2024 (S.I. 2024/1012) omitted, inserted and substituted provisions of three pension instruments for the tax year 2024-25 and subsequent tax years, with effect from 18 November 2024¹.

In The Financial Assistance Scheme (Tax) Regulations 2010, regulation 4 was substituted, and a word was omitted from regulation 1(3), on 18 November 2024 for the tax year 2024-25 and subsequent tax years¹. The substituted regulation 4 modifies Chapter 15A of Part 9 of ITEPA 2003 in relation to certain lump sums paid by the Financial Assistance Scheme, and provides that no liability to income tax arises on a lump sum paid to an individual under regulation 17D of the Financial Assistance Scheme Regulations 2005, or on a payment made in respect of an individual under regulation 18A in the form of a lump sum, subject to the permitted maximum¹. The permitted maximum for a regulation 17D lump sum is the lower of so much of the individual's lump sum allowance as is available, and so much of the individual's lump sum and death benefit allowance as is available, on the individual becoming entitled to the lump sum¹.

In The Pension Protection Fund (Compensation) Regulations 2005, words in regulation 1(2) were omitted on 18 November 2024 for the tax year 2024-25 and subsequent tax years². In The Taxation of Pension Schemes (Transitional Provisions) Order 2006, article 19 was omitted on 18 November 2024 for the tax year 2024-25 and subsequent tax years by S.I. 2024/1012, and article 22 was omitted on the same date by The Pensions (Abolition of Lifetime Allowance Charge etc) (No. 3) Regulations 2024 (S.I. 2024/1167)³. Words were also inserted into article 1(2) of that Order on 18 November 2024 for the tax year 2024-25 and subsequent tax years by S.I. 2024/1012³.

The Financial Assistance Scheme Regulations 2005 establish a financial assistance scheme which allows payments to be made to, or in respect of, certain members or former members of certain occupational pension schemes where the liabilities of the scheme to those members have not been satisfied in full¹. The 2010 Regulations state that, apart from when a tax charge is generated under regulation 5, regulation 4 provides that the new lump sums that the FAS will pay will not generate a charge to income tax for the recipient¹.

The three instruments were made on different dates: the Financial Assistance Scheme (Tax) Regulations 2010 were made on 6 April 2010 and came into force on 1 May 2010¹; the Pension Protection Fund (Compensation) Regulations 2005 were made on 11 March 2005 and came into force on 6 April 2005²; and the Taxation of Pension Schemes (Transitional Provisions) Order 2006 was made on 9 March 2006 and came into force on 6 April 2006³.

Why it matters for households

The changes apply to the tax treatment of certain lump sums paid by the Financial Assistance Scheme, and to the tax provisions of the Pension Protection Fund compensation regulations and the transitional provisions order, for the tax year 2024-25 and subsequent tax years¹. For recipients of FAS lump sums under regulation 17D or regulation 18A, the substituted regulation 4 sets out that no income tax liability arises on the lump sum except on any excess above the permitted maximum, which is measured against the individual's available lump sum allowance and lump sum and death benefit allowance¹. The amendments took effect from 18 November 2024¹.

What happens next

Further amendments to the same instruments are recorded as taking effect on 25 June 2026 for the tax year 2024-25 and subsequent tax years, by The Pensions (Abolition of Lifetime Allowance Charge etc) Regulations 2026 (S.I. 2026/698)¹.