LTA-Day tax changes

What has changed?

6 April 2024 (LTA-Day) marked the end of the lifetime allowance (LTA). The LTA’s demise brings with it a number of complications, the key one being where to draw the dividing line between tax-free lump sums and taxed lump sums in its absence. Two new allowances, the “lump sum allowance” and the “lump sum and death benefit allowance”, have therefore made their debut.

What do trustees need to think about?

The timeframe for the changes was extremely tight, and with more regulations and HMRC guidance expected, trustees, their administrators and employers will need to get to grips with:

• how the two new allowances work in practice and the implications for those with LTA protections
• the role of the new authorised lump sum, the “pension commencement excess lump sum”, and the circumstances in which this might be available
• transitional arrangements for individuals who have taken benefits before LTA-Day
• when and what to communicate to members
• potential impacts on scheme benefit design, including unregistered death benefit arrangements, and possible resulting scheme rule amendments
• updates to administration processes and reporting requirements to cater for the above.

What’s next?

Although the post LTA-Day pensions tax regime is now in force, some pieces of the jigsaw are yet to fall into place. Further regulations are expected to iron out remaining wrinkles in the legislation, and HMRC continues to publish more guidance and updated PTM pages. So, there are still some more important developments to look out for ahead.