Lifetime Allowance Charge

Pension Lifetime Allowance Charge

The maximum amount you could save in your pension and still receive the full tax benefits is known as the Lifetime Allowance (LTA). For tax year 2022/23 the LTA was £1,073,100. If your pension savings exceeded this amount, a tax charge would have applied when you withdrew or designated the excess amount for withdrawal, such as moving it to a Drawdown pot, or when you reached your 75th birthday.

 

However, the good news is that the government has announced plans to remove the Lifetime Allowance tax charges from 6th April 2023. If successfully ratified in legislation, the Lifetime Allowance will be abolished via a future Finance Bill from the 2024/25 tax year.

Despite the removal of the LTA tax charges, it is important to note that any withdrawals over the current LTA will still be subject to income tax at the normal marginal rate based on the full value of the withdrawal.

In addition, the maximum amount that can be withdrawn from a pension as Tax-Free Lump Sums will remain at 25% of the current LTA. From 6th April 2023, pensions will be able to grow to any value without being subject to an LTA tax charge. However, the maximum amount that can be withdrawn as a Tax-Free Lump Sum will be limited to £268,275 (25% of the current LTA), unless you have LTA Protections, which can allow you to maintain entitlement to a higher tax-free amount.

To summarise, in the 2022/23 tax year, the Lifetime Allowance is £1,073,100 with a maximum value of all Tax-Free Lump Sums set at £268,275 (higher entitlements available via LTA Protections). From the 2023/24 tax year onwards, the Lifetime Allowance will be abolished, and the maximum value of all Tax-Free Lump Sums will remain at £268,275 (with higher entitlements available via LTA Protections). However, this is subject to the successful ratification of legislation.

 

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Get Started Today

Book a Meeting

Wanting to know if you're on track to reach your financial goals? Book an appointment for a financial review, or to meet with one of our experienced financial planning advisors today, and find out what we can do for you.

Read about our advisors on our about page here.

This guide was written by Craig Croft-Rayner, an independent financial advisor at Milestone Financial Planning. It is a for guidance only and is not in of itself financial advice. Should any of the above apply to you, please get in touch for a consultation at no cost.