HMRC confirms LTA protections remain valid if applied for before Spring Budget

HMRC has confirmed that members that hold lifetime allowance (LTA) protections will be able to accrue new pension benefits, join new arrangements or transfer without losing these protections if they were applied for before 15 March 2023.

They will also be able to keep their entitlement to a higher pension commencement lump sum.

Members will also need a certificate or reference number that was subsequently issued following their application.

Due to the changes to the LTA announced in the Spring Budget, the maximum amount members can take as an initial lump sum will be frozen at 25 per cent of the previous LTA of £1.073m, which equates to £268,275.

Members who hold a valid enhanced protection or any valid fixed protections will be able to keep their higher tax-free cash protection.

Those who held a protected right to a higher pension commencement lump sum will also be able to continue to access this right.

“The incredible news that the lifetime allowance is to be abolished came with a nasty sting-in-the-tail,” commented AJ Bell head of policy development, Rachel Vahey.

“Tax-free cash will be capped for pension savers at £268,275, although those who have previously applied for lifetime allowance protection get to keep any higher tax-free cash amount.

“Initially it seemed those with enhanced or fixed protection risked losing their protection – and therefore their higher tax-free cash – if they broke the protection rules by paying more into their pension. This would have effectively stopped them from being able to benefit from the removal of tax limits.

“It’s good news to learn that, instead, they will be free to start paying in contributions or transfer pension arrangements without any nasty consequences. In addition, they may be able to carry forward their unused annual allowance from the previous three years, meaning they could pay a total contribution of £180,000 next tax year if they have earnings to support it.

“We still need to see the details in the Spring Finance Bill, but it now looks like those with enhanced and fixed protection have got a boost to take advantage of the new tax-free pension rules while still getting to keep their valuable higher tax-free cash entitlement.”

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