Important information about changes to your lifetime allowance

17th December 2015

HMRC has recently provided the following details of changes to the lifetime allowance.

The lifetime allowance for pension savings will be reduced from £1.25 million to £1 million from 6 April 2016. As you may be aware clients that are members of a registered pension scheme have a single lifetime allowance in relation to the value of tax-privileged benefits they can draw from their pension schemes over their lifetime. Any benefits paid out from registered pension schemes in excess of a client’s lifetime allowance are subject to a tax charge known as the lifetime allowance charge.

The tax charge is 55% of any amount over the lifetime allowance taken as a lump sum and 25% of any amount over the lifetime allowance that is taken as pension income.

Feedback indicates that affected clients are making decisions now and agreeing salaries and the level of pension savings for both their own and their employer contributions for 2016 to 2017. These decisions may result in a lifetime allowance tax charge if members are not aware of the lifetime allowance reduction and HMRC are encouraging advisers to remind their clients of the change.

What do you need to do?

Please let your clients know that lifetime allowance protection regimes will be available to protect their pension savings when the lifetime allowance reduces to £1 million from 6 April 2016. There will be two new protection regimes, known as fixed protection 2016 and individual protection 2016 and these will have similar conditions to fixed protection 2014 and individual protection 2014.

Your clients will be able to apply for fixed protection 2016 and individual protection 2016 by using HMRC’s new on-line self-service system which will be available from July 2016. The new self-service system is still being developed and HMRC are expected to provide more information on this in due course. In the meantime a paper-based system will be made available.

If you believe your client may want to rely on fixed protection 2016 it is important that you start reviewing what arrangements they need to make to stop pension benefits accruing by 5 April 2016.

We have provided information you can share with your clients on these changes here.

The information given above is based on our understanding of the proposed changes. Tax rates are not guaranteed and may change in the future.

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