Changes to Lifetime Allowance…. we never saw that one coming!
There is always a leak or two before a budget and this year was no exception. The increase in pension annual allowance, for example, from £40,000 to £60,000 may be welcome news to many.
What we were also led to believe was that the lifetime allowance (LTA) might also be increased from the current level of £1,073,100.
However, what the Chancellor actually announced in his first budget on 15th March was a complete removal of the LTA altogether! This comes into effect from next April 2024, so 2023/24 is a transitional year.
It should be noted that the new unlimited allowance only applies to your full fund and doesn’t allow unlimited access to tax free cash. Withdrawal of tax free cash is still restricted to the present LTA amount. So, if your fund exceeds the current LTA and you draw 25% of your fund expecting it to be tax free, anything over £268,275 will be added to your income for that year and taxed accordingly.
If you are someone who has Pension Protection – safeguarding their LTA to previous higher levels – you should also proceed with particular caution and do nothing rash in the short term. Remember that those with protection are barred from further contributions as they would negate the protection. Under the new rules, the protection, is in effect, safeguarding the amount of tax free cash you can draw out.
Clearly, this is not straightforward, so if you think this affects you, please seek advice before taking any action. Future Chancellors might change their minds about this!
If you would like more information, you can of course contact Greaves West & Ayre Wealth Management team. We can review your unique financial situation and offer independent advice. If you are not yet a GWA client, our initial meeting will be entirely at GWA’s expense, to establish your needs and how we can help.