The Chancellor surprised the industry on 15 March, when he announced that the Lifetime Allowance (LTA) would be scrapped. The LTA stands currently at £1.073 million and anyone crystallising benefits in excess of this (and who does not have one of the many protections available) is liable to a LTA charge. The charge is 25% of the excess over the LTA if it is taken as pension (on which PAYE tax will be paid as well) or 55% of the excess if it is taken as cash.
There will, however, be a lifetime limit on the amount of tax-free cash that can be taken; this will be frozen at 25% of the current standard LTA i.e. £268,275 (for those who have not protected a higher sum), so the tax shortfall (to the Treasury) of the measure will be restricted to the effect of people paying a lower rate of income tax in retirement than they were paying when working.
The scrapping of the LTA will be done in two stages:
- the 2023 Finance Act will abolish the LTA charge (so the LTA will remain but have no effect) with effect from 6 April 2023,
- then in 2024/25 the LTA itself will be abolished.
However, His Majesty’s Opposition has declared that it will reverse the changes if and when it comes to power. With a general election due next year, this may make financial planning more difficult than usual.
The Budget also included:
- an increase in the standard Annual Allowance (AA), from £40,000 to £60,000, and
- an increase in the tapered AA and the Money Purchase AA from £4,000 to £10,000.