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by TONY BYRNE pictured, managing director of Wealth & Tax Management www.wealthandtax.co.uk
THE CHANCELLOR’S surprise statement in the recent Budget that the Lifetime Allowance (LTA) is going to be abolished in 2024/25 and will not apply in 2023/24 was welcomed by those who are affected. However, on closer examination, all is not what it seems.
You see, the Chancellor, Jeremy Hunt, hasn’t abolished the LTA after all. What he has done is kept the LTA regime and replaced the 55% tax charge on pensions with a tax charge based on your marginal rate of Income Tax in the current tax year instead. So the tax charge still exists but the tax rate on it has simply been reduced. You could still pay up to 45% if you have a so-called Benefit Crystallisation Event (BCE) when taking benefits from your pension in 2023/24 if the excess benefits above the LTA are taken as a lump sum (for example, where not able to be placed into flexi-access drawdown instead).
What’s more the maximum tax-free lump sum from your pension has been frozen to 2026 at £268,275 which is an ominous sign. Probably, this amount will never increase in the future and with inflation currently at a high level that means the benefit is losing its value in real terms.
With a general election likely to take place next year and the Labour Party having already announced they will re-introduce the LTA if they are elected, this tax year may well be the only year when you can reduce the LTA tax charge so it is important to take advice because this tax charge is particularly swingeing.
The good news is there are numerous ways to limit the effect of the Lifetime Allowance and we regularly advise clients on how to do this.
If you are interested in ways to reduce the Lifetime Allowance, take advantage of a one-hour Discovery Meeting either at our offices or by a video conference call at our expense worth £270 to each of the first three readers who contact us before June 30 2023. You know it makes sense. We offer a great cup of coffee too!
Ring us on 01908 523740 or for free on 0800 980 4516 or email wealth@wealthandtax.co.uk and quote June2023 offer to book your free discovery meeting.
RISK WARNING: The Financial Conduct Authority does not regulate tax planning. The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount invested. The tax implications of advice will be based on your individual circumstances, tax legislation and case law as well as regulations which are subject to change. You should always seek tax advice from a taxation specialist in order to understand your options. This article is based on my own observations and opinions.
