First introduced by Gordon Brown in 2006 to bring in more tax from society’s wealthiest, the LTA arguably disincentivised pension saving. The allowance reduced significantly in recent years, dropping almost £800,000 between 2012 and 2022.
Chancellor Jeremy Hunt is almost certainly hoping that abolishing it will help retain the senior workforce within the NHS and tempt some to return.
Your lifetime allowance is the amount you can hold in combined UK pension benefits (excluding the state pension) before incurring additional tax charges. Currently, anyone whose pension funds amount or grow to over £1,073,100 (unprotected LTA) would have to pay tax penalties of 55% when taken as a lump sum or 25% for income or overseas transfers.
But now, as of 6 April 2023, the LTA tax rate will effectively reduce to zero before being scrapped entirely in the 2024 Finance Bill.
Will this be permanent?
Following the budget, the Labour Party pledged to reverse the abolition of the lifetime allowance, labelling it a “a Tory tax cut for the rich”. Shadow Chancellor Rachel Reeves stated that the move was “the wrong priority, at the wrong time, for the wrong people” and that “a Labour government will reverse this move”.
The next UK general election must be held no later than 24 January 2025, and recent poll numbers suggest that Labour could very well form the next government.
The reinstatement of the lifetime allowance on pensions is certainly not guaranteed, but given that senior members of a political party that could win the next election have made a definitive statement that could easily belong to an election manifesto, the possibility should not be ignored.
Expatriates who have UK pension funds above £1 million (or likely to swiftly exceed this level) may have options to transfer to a suitable alternative pension scheme, depending on your personal situation. It is worth seeking specialist, regulated advice to look at your specific situation sooner rather than later, as pension transfers can take several months.
To ensure you are best placed to benefit fully from any positive regime being introduced, it’s important to take personalised financial advice.
Summarised tax information is based upon our understanding of current laws and practices which may change. Individuals should seek personalised advice.
Keep up to date on the financial issues that may affect you on the Blevins Franks news page at www.blevinsfranks.com
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