The latest Finance Bill will legislate the announcement in the Spring Budget that the lifetime allowance (LTA) charge is abolished from 6 April 2023.
Individuals will continue to be able to receive 25% of their pension savings as a tax-free lump sum when they become entitled to their pension benefits. From 6 April 2023, for most individuals, the tax-free amount will be capped at £268,275.
The £268,275 limit represents 25% of the 2022/23 LTA of £1,073,100. The LTA has changed many times over the years and has been as high as £1.8 million. This is a complex area, but taxpayers have been able to elect to protect their LTA at the higher amount. HMRC have confirmed that individuals who hold valid LTA protection can access a tax-free lump sum of more than £268,275. The exact amount will depend on which protection they hold.
Those who made a successful enhanced protection or fixed protection application prior to 15 March 2023, can also re-commence contributing to their pension scheme from 6 April 2023 without losing their protection. They are also able to enrol into new workplace pension schemes and transfer money between pension schemes from 6 April 2023 without losing LTA protection.
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