Lifetime allowance legislation remains incomplete as HMRC set to make ‘retrospective’ changes after April

by | Mar 28, 2024

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HMRC has confirmed today that it intends to issue a second set of regulations changing the legislation on the lifetime allowance abolition (Newsletter 157 — March 2024 – GOV.UK (

The Finance Act 2024 sets out the main legislation for the abolition of the lifetime allowance, including an unusual ‘Henry VIII’ clause allowing the Treasury to make subsequent changes to the primary legislation through regulation. HMRC has already issued one set of regulations making changes which are effective from 6 April 2024. However, it has identified other areas that need changing and will issue another set of regulations to make these changes retrospectively after 6 April.

Commenting on this latest detail, Tom Selby, director of public policy at AJ Bell, said:


“The decision to abolish the lifetime allowance was a huge positive for savers, removing an unfair tax penalty for long-term saving and removing one of the key barriers to senior public sector staff, including NHS consultants, taking on extra hours for fear of facing a tax charge as a result. However, the changes have been rushed and there are still issues that will not be resolved by the time the new rules are in place on 6 April.

“As a result, the government will need to make changes to the rules post-implementation. This is far from ideal and means financial advisers, savers and providers will find the switch to the new regime this year hugely challenging. This clearly increases the risk of things going wrong and runs counter to the FCA’s Consumer Duty, which requires firms to avoid foreseeable harm.

“This potential source of harm was obvious for all to see and yet the government has ploughed ahead regardless.”


What further changes could be made?

HMRC, working with the industry, has identified further minor technical changes to the legislation, which it will correct through a second set of regulations.

These will hopefully include changes to the rules giving those pension savers with enhanced protection a higher lump sum allowance (LSA), as well as clarification for those who have scheme-specific lump sum protection.


How we got here: the end of the lifetime allowance…and two new lump sum allowances

Last tax year (2022/23), the lifetime allowance was £1,073,100, with the maximum amount of pensions tax-free cash someone can build up in their lifetime usually limited to 25% of this, or £268,275. Any excess above this lifetime allowance was subject by HMRC to a lifetime allowance charge of either 25% (if taken as income) or 55% (if taken as a lump sum).

In the 2023 Spring Budget, chancellor Jeremy Hunt said the government intended to abolish the lifetime allowance altogether. Changes brought into force in April 2023 retained the lifetime allowance in the tax system but removed the lifetime allowance charge.

The lifetime allowance will be fully removed from the pension tax rules from April this year, leaving a tax regime where consumers can take as much income as they want from their pension (albeit still subject to income tax) and checks will only be made on lump sums taken.

Two main new allowances are being created under the plans:

  • An individual ‘lump sum allowance’ set at £268,275 (a quarter of the current £1,073,100 lifetime allowance) – measuring the tax-free cash taken over someone’s lifetime
  • An individual ‘lump sum and death benefit allowance’ set at £1,073,100 – incorporating tax-free lump sums someone takes while alive, plus any serious ill health lump sum and lump sums paid out when they die

There will be a third allowance – an overseas transfer allowance – also set at £1,073,100, measuring the value of pension benefits transferred to qualifying overseas pension schemes.

Someone who exceeds any of these allowances will see the excess taxed in the same way as income.

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