Guidance

Lifetime allowance guidance newsletter: March 2024

Updated 15 March 2024

Frequently asked questions

Lump sums and lump sum death benefits

Question 1 — Can a lifetime allowance (LTA) excess lump sum be paid after 6 April 2024 where an individual’s entitlement to that lump sum arose before this date?

Yes. We will be bringing forward legislation through regulations which provides that, where a lump sum to which a member became entitled before 6 April 2024 is paid after this date, the amendments made by schedule 9 to Finance Act 2024 should be disregarded for the purposes of determining whether that lump sum is payable under section 166 of Finance Act 2004, as well as for determining the tax treatment of that lump sum.

Question 2 — Will the legislation for trivial commutation lump sums (TCLS) be amended to ensure that pre-A Day rights are not double counted in calculating the commutation limit?

Yes. We will be bringing forward legislative changes through regulations to ensure that the valuation of rights, assessed against the £30,000 threshold for payment of a TCLS, does not double count pre-A Day pensions in payment.

Question 3 — Whose allowance will lump sum death benefits paid in respect of dependants, nominees or successors be tested against?

Where lump sum death benefits are paid in respect of a deceased dependant, nominee or successor, these will be tested against the dependant’s, nominee’s or successor’s available lump sum and death benefit allowance. The benefit will not be tested against the original member’s or beneficiaries’ allowance. It is also the age and date of death of the dependant, nominee or successor that will be relevant for the tax treatment of the lump sum death benefit paid. This is provided for by sections 637L(7) and 637M(7) of new Chapter 15A of ITEPA 2003, which states that references to ‘member’ in these sections are to be read as references to the dependant, nominee, or successor. For clarity, where the lump sum death benefit is paid from funds which crystallised before 6 April 2024, these are not tested against any allowance.

Question 4 — If a lump sum death benefit is paid from funds which crystallised before 6 April 2024 and so is not chargeable to income tax, how does this interact with the definition of permitted maximum and available lump sum and death benefit allowance?

Paragraph 131 of schedule 9 to Finance Act 2024 excludes any amount of a lump sum death benefit that is paid from funds that crystallised prior to 6 April 2024. The result of this is that the adjusted figure applies for the purposes of section 637S (availability of an individual’s lump sum and death benefit allowance), and therefore for sections 637H to 637M of Chapter 15A to ITEPA 2003.

Question 5 — Will the Provision of Information regulations (SI 2006/567) be amended so that a registered pension scheme must provide a statement to a deceased member’s legal personal representative, after the payment of any lump sum death benefit that is a relevant benefit crystallisation event?

Yes. Regulation 8 of The Registered Pension Schemes (Provision of Information) Regulations 2006 (SI 2006/567) will be amended to provide for all six lump sum death benefits that are relevant benefit crystallisation events to be included in a statement to a legal personal representative.

Protections and enhancement factors

Question 6 — How are stand-alone lump sums tested against the new allowances?

For a stand-alone lump sum (SALS) paid under circumstances A (article 25B(2)) and B (article 25B(3)), the individual’s lump sum allowance (LSA) and lump sum and death benefit allowance (LSDBA) will be reduced by the tax-free part of that lump sum. Any excess over the permitted maximum can be paid as a SALS, but the excess will be taxed as pension income.

For a SALS paid under circumstance C (article 25B(4)), the individual’s LSDBA will be reduced by the tax-free part of that lump sum. However, the individual’s LSA will be reduced by 25% of the lump sum. Any excess over the permitted maximum can be paid as a SALS, but the excess will be taxed as pension income.

These provisions are found at paragraph 95(5) of schedule 9 to Finance Act 2024, which amends article 25C of The Amendments of the Taxation of Pension Schemes (Transitional Provisions) Order 2006 (SI 2006/572).

Question 7 — Why are certain individuals with protections or enhancement factors unable to receive an uncrystallised funds pension lump sum (UFPLS)?

New paragraphs 7(8), 12(3H), 18(7), 20A(8), 20B(8) and 20E(9) of schedule 36 to Finance Act 2004 replicate existing provisions under paragraph 4A of schedule 29 to this act. They therefore maintain the circumstances under which certain individuals were not eligible, and will continue not to be eligible, to receive an UFPS.

Question 8 — Do enhancement factors apply at every relevant benefit crystallisation event that takes place in respect of that member?

No. Under the LTA, most enhancement factors did not increase individuals’ entitlement to a 25% tax-free lump sum. However, as enhancement factors applied at all benefit crystallisation events, they did increase the maximum tax-free element of a serious ill-health lump sum or a lump sum death benefit that an individual could receive.

The changes introduced under Finance Act 2024 to enhancement factors maintain this distinction. Paragraph 67 of schedule 9 introduced new paragraph 6A of schedule 36 to Finance Act 2004. This sets out that enhancements to an individual’s lump sum and death benefit allowance occur at all relevant BCEs except the payment of a pension commencement lump sum or uncrystallised funds pension lump sum.

Question 9 — Will individuals who wish to apply for an enhancement factor in the 2024 to 2025 tax year still need to apply to HMRC using the existing forms?

Yes. Individuals should continue to apply using the APSS201 for an enhancement based on pension credits from previously crystallised rights, and the APSS202 for international enhancement factors. Forms will be amended to reference the lump sum and death benefit allowance and not the LTA.

Question 10 — Why is there no longer a floor of the ‘standard’ allowances for those with Individual Protection 2014 or 2016 whose relevant amount falls below £1,073,100?

This is not an intentional change. We will be bringing forward legislative changes through regulations so that there continues to be a floor.

Reporting requirements

Question 11 — Will a pension commencement lump sum (PCLS), pension commencement excess lump sum (PCELS), or small lump sums need to be reportable under Event 24 or under Real Time Information (RTI)?

A PCLS will only be reportable where the individual is relying on a protection and, had they not had a protection or an enhancement factor, the payment would have exceeded their available allowances.

 A PCELS and small lump sums will not be reportable under Event 24 as they are not relevant BCEs. The payment of a PCELS would however need to be reported under RTI as the full amount is taxed as pension income. Small lump sums will continue to need to be reported under RTI, as per current processes.

Question 12 — Will schemes be required to report against a member’s available lump and death benefit allowance under Event 24?

No. Updates to the February LTA Guidance Newsletter clarify that schemes will only be required to report lump sum death benefits under Event 24 where the aggregate of values paid by the scheme exceed the individual’s lump sum and death benefit allowance of £1,073,100, as set out in section 637R of new chapter 15A of ITEPA 2003. This requirement will operate similarly to current Event 2.

Question 13 — Will serious ill-health lump sums (SIHLS) and lump sum death benefits (LSDB) paid to or in respect of members aged 75 or over, and which are therefore fully taxable, be reported under Event 24?

Yes. A SIHLS would need to be reported on Event 24 if it exceeds the individual’s available LSDBA, even if fully taxable. This is because it is still a relevant BCE.

As with LSDBs paid to members aged under 75, a LSDB paid to members aged 75 and over would only need to be reported on Event 24 if the aggregate amounts paid by the scheme exceed £1,073,100.

Question 14 — Will schemes be required to report lump sum death benefits paid to or in respect of members under age 75 on RTI given that they will not be responsible for determining the tax treatment?

Yes. Such payments will need to be reported on RTI as tax-free, unless it is the payment of an uncrystallised funds pension lump sum death benefit or defined benefits lump sum death benefit. It will then be the responsibility of the deceased member’s legal personal representative to provide the relevant information to HMRC so that HMRC can raise any marginal rate tax charges on the beneficiaries. The new form for legal personal representatives to provide this information to HMRC will be live from 6 April 2024.

Question 15 — Do statements need to be provided to members where the relevant benefit crystallisation event is the payment of a fully taxable lump sum, and so no allowances have been used?

Yes. The changes introduced by part 5 of schedule 9 to the Finance Act 2024 to regulation 14 of The Registered Pension Schemes (Provision of Information) Regulations 2006 (SI 2006/567) provide that a scheme administrator shall give a statement containing information about the amount of the member’s lump sum allowance, and their lump sum and death benefit allowance used by the relevant benefit crystallisation event. There is no provision for a scheme administrator to withhold a statement where the amount of a member’s allowances used is nil.

Transitional tax-free amount certificates

The February 2024 LTA Guidance Newsletter provided further information about transitional tax-free amount certificates including:

• when and how members should apply
• the provision of complete evidence
• what certificates should contain
• penalties for inaccurate certificates
• interactions with BCE5, BCE5B and BCE8
• interactions with pre-commencement pensions

The LTA Working Group on 8 February raised additional questions on transitional certificates. The following information provides further clarification on outstanding questions from that session.

Question 16 — Will HMRC be reconsidering the need to apply for a transitional certificate before an individual’s first relevant benefit crystallisation event (RBCE)?

No. This is because it will be necessary for individuals to go through the appropriate transitional process prior to their first RBCE, in order for their available allowance to be determined and to ensure the correct tax treatment of the lump sum or lump sum death benefit paid. Introducing the option to apply after your first RBCE would introduce additional complexities by potentially requiring the recalculation of tax on benefits already paid.

Question 17 — Will HMRC consider introducing a requirement for members to provide their LTA percentage used as part of their complete evidence?

Paragraph 129(2) to 129(4) of schedule 9 to Finance Act 2024 define ‘complete evidence’ as evidence of each lump sum and lump sum death benefit (if any) that the individual become entitled to prior to 6 April 2024, insofar as there was no charge to income tax.

It is therefore implicit in legislation that applicants will need to provide evidence of their total LTA percentage used, and evidence of pension benefits not taken as lump sums. Without this information it will not be possible for schemes to determine how much of the member’s LTA previously used amount was taken as tax-free lump sums, and to certify these amounts on the member’s certificate. This will be clarified in guidance.

Question 18 — Will HMRC be introducing a requirement for members to notify every registered pension scheme of which they are a member that they hold a transitional tax-free amount certificate?

As under the LTA, there is nothing in legislation which requires members to provide BCE statements to their pension scheme. This principle extends from 6 April where this is not an explicit legislative requirement for members to provide RBCE statements or transitional tax-free amount certificates to their scheme. However, the scheme must be able to establish the member’s available allowances before the payment of a relevant lump sum.

Question 19 — Does the member or legal personal representative need to apply for the transitional certificate before an individual’s first relevant benefit crystallisation (RBCE), or does the certificate also need to have been granted by the scheme?

The certificate must have been issued before the member’s first RBCE. This is because paragraph 127(2)(d) and 127(7)(a) of schedule 9 to Finance Act 2024 provide that an application may not be made after their first RBCE and that a certificate comes into force when it is issued. Under paragraphs 125(4) and 126(5), the transitional tax-free amount certificate must then be “in force… on the occurrence” of an RBCE to apply at that event.

Question 20 — Can members provide further evidence within the three-month window?

Yes. An application must be accompanied by complete evidence, as set out at paragraph 127(2)(c) of schedule 9 to Finance Act 2024. However, there is nothing in legislation which prevents the member providing or a scheme requesting further evidence. A response must still be provided within the three-month window set out at paragraph 3 of schedule 9 to Finance Act 2024. Further, the three-month window still starts on the date upon which the initial application is received, and does not restart on the date on which any further evidence is provided by the member.

Question 21 — Can schemes refuse an application or issue a certificate before the three-month window closes?

Yes. Paragraph 127(4) of schedule 9 to Finance Act 2024 sets out that schemes must issue the applicant with a certificate or notify them that their application has been refused “before the end of the period of three months”. Therefore, if schemes are satisfied that the evidence is complete, or they have already determined that the evidence is insufficient, they may respond to the applicant in less than three months.

Question 22 — Can members make more than one application to the same scheme?

Nothing in legislation prevents individuals from making more than one application to the same registered pension scheme, where an initial application has been refused. However, if no further evidence is provided, schemes may notify the applicant that the application has been refused. They do not need to reconsider the same evidence or wait three months to respond to the member.

Question 23 — Can members apply to a scheme which they are not yet a member of?

No. Paragraph 127(2)(b) states that an individual may apply “to any registered pension scheme of which the individual is a member or, if the individual is deceased, of which the individual was a member immediately before death”. Therefore, the legislation does not allow individuals to apply to registered pension schemes of which they are not yet a member, even if they are about to transfer their pension savings to that scheme.

Question 24 — Can members make an application to an annuity provider?

No. Paragraph 127(2)(b) requires members or legal personal representatives to make their application to a registered pension scheme.

Question 25 — What happens in the event that a transitional tax-free amount certificate is cancelled?

Where a member’s transitional tax-free amount certificate is revoked, any past RBCEs will continue to be reduced by the transitional tax-free amounts. We are considering whether there should be a requirement to notify HMRC where a transitional certificate has been revoked so that HMRC can determine where there is further tax due.

For any future RBCEs, these will be subject to the standard transitional calculation because there is no longer a transitional certificate in force. Schemes will be able to calculate the member’s available allowances under the standard transitional calculation because their (revoked) transitional tax-free amount certificate would have stated the individual’s LTA previously-used amount.

Standard transitional calculation

The LTA Working Group on 8 February raised further questions on the standard transitional calculation provided for at paragraphs 125 and 126 of schedule 9 to Finance Act 2024. This article provides further clarification on these provisions.

Question 26 — Will HMRC be reconsidering the impact of serious-ill health lump sums on the standard transitional process?

No. As confirmed in the February 2024 LTA Guidance Newsletter, where an individual under age 75 has received a serious ill-health lump sum (SIHLS) before 6 April 2024, 100% of their LTA previously used amount should be deducted from their lump sum and death benefit allowance (LSDBA). It would remain the case that only 25% is deducted from their lump sum allowance (LSA).

For example:

Eliza has no protection. Her LSA is therefore set at £268,275 and her LSDBA is set at £1,073,100.

Eliza has crystallised pension rights before 6 April 2024. Her statement shows that she has crystallised 30% of her LTA. Eliza does not apply for a transitional tax-free amount certificate. She will go through the standard calculation to establish her available LSA and LSDBA.

Eliza received a SIHLS in January 2024, aged under 75. The STC therefore sets out that her LSA is reduced by 25% of her LTA previously-used amount, and her LSDBA is reduced by 100% of her LTA previously-used amount.

• previously used amount = £1,073,100 × 0.3 = £321,930
• LSA remaining = £268,275 – (£321,930 × 0.25) = £187,792.50
• LSDBA remaining = £1,073,100 – £321,930 = £751,170

This is because the standard transitional calculation is based on assumptions. This rule therefore reflects the fact that SIHLS paid to individuals under age 75 are currently tax-free up to the LTA. Where individuals have not taken 100% of their LTA previously used amount as tax-free lump sums, including SIHLS, they would be able to apply for a transitional tax-free amount certificate.

Question 27 — Will HMRC be reconsidering the position of individuals whose pension benefits ‘crystallised’ for LTA purposes at age 75?

Finance Act 2024 operates such that, where individuals have ‘crystallised’ pension benefits for LTA purposes at age 75, these values are not excluded from the standard transitional calculation. This is because the LTA previously-used amount does not exclude values crystallised at particular BCEs.

We understand that this represents a change from the LTA legislation. This is because, whilst most lump sums are  either not permitted or are fully taxable over age 75, values crystallised at BCE5/5B are disregarded when determining an individual’s available portion for the purposes of a pension commencement lump sum.

We are considering changes to the legislation to resolve this issue; however, where necessary, in the meantime individuals will be able to apply for a transitional tax-free amount certificate to ensure that values crystallised at BCE5/5B are not deducted from their available allowances from 6 April 2024.

Question 28— Should the standard transitional calculation be based on the percentage of standard LTA, or the monetary values of crystallisations revalued?

The standard transitional calculation does not require pension scheme administrators to revalue benefits received by members where benefit crystallisation events occurred prior to the reduction of the standard LTA in 2016. Rather, the standard process requires schemes to convert the percentage of LTA used to a monetary figure, and to deduct 25% (in most cases) of this amount from the individual’s lump sum allowance and lump sum and death benefit allowances.

For example:

John has no protections. His LSA is therefore set at £268,275 and his LSDBA is set at £1,073,100. ​

John has crystallised pension rights before 6 April 2024. His statement shows that he has crystallised 20% of his LTA. John does not apply for a transitional tax-free amount certificate. He will go through the standard calculation to establish his available LSA and LSDBA.

John has not received a SIHLS under the age of 75 prior to 6 April 2024. The STC therefore sets out that his LSA and LSDBA are reduced by 25% of his LTA previously-used amount.

• previously used amount = £1,073,100 × 0.2 = £214,620
• LSA remaining = £268,275 – (£214,620 × 0.25) = £214,620
• LSDBA remaining = £1,073,100 – (£214,620 × 0.25) = £1,019,445

Question 29 — Impact of protections on the standard transitional calculation?

Where an individual holds a valid protection, the conversion of their LTA percentage used to the monetary amount of their new allowances used should be calculated on the basis of their protected LTA, and the relevant amounts then deducted from their protected LSA and LSDBA.

For example:

Hannah has fixed protection 2016. From 6 April 2024, her LSA is therefore set at £312,500 and her LSDBA is set at £1,250,000.

Hannah has crystallised pension rights before 6 April 2024. Her statement shows that she has crystallised 40% of her LTA. Hannah does not apply for a transitional tax-free amount certificate. She will go through the standard calculation to establish his available LSA and LSDBA.

Hannah has not received a SIHLS under the age of 75 prior to 6 April 2024. The STC therefore sets out that her LSA and LSDBA are reduced by 25% of her LTA previously-used amount.

• previously used amount = £1,250,000 × 0.4 = £500,000
• LSA remaining = £312,500 – (£500,000 × 0.25) = £187,500
• LSDBA remaining = £1,250,000 – (£500,000 × 0.25) = £1,062,500

Note that there will be amended transitional arrangements for individuals with primary protection without protected lump sum rights of more than £375,000, and for all individuals with enhanced protection. Articles in this newsletter provide further detail.

Member statements

The February 2024 LTA Guidance Newsletter provided further information about annual statements and one-off statements including:

• confirmation that schemes can continue to use P60 statements to report annual lump sum allowance and lump sum and death benefit allowance usage.
• clarification on what should be included in annual statement issued to members, including whether these should include LTA percentage used or the amounts of lump sum and lump sum and death benefit allowances used.
• clarification on who paragraph 130 statements should be issued to, by when, what this statement should include and that HMRC will not prescribe its format.

The LTA Working Group on Reporting Requirements took place on 14 February. We understand that there are outstanding questions on reporting requirements following the abolition of the LTA, including in relation to annual and one-off statements and their interaction with the transitional arrangements. To illustrate these processes, we shared draft process maps with the Working Group on 26 February. Thank you for your feedback on those. We are working to update these maps and will recirculate shortly. If you would like to request a copy of these process maps, email policypensions@hmrc.gov.uk and include ‘LTA Abolition Process Maps’ in the subject heading.

The following provides further clarification.

Question 30 — For individuals who crystallised benefits prior to 6 April 2024, when should schemes issue an annual RBCE statement and when should they issue a one-off statement under paragraph 130?

An individual should receive an annual statement from their pension scheme if they were receiving an annual statement prior to 6 April 2024, or if they had received an annual statement but these stopped because the member turned 75.

An individual should receive a one-off statement from their pension scheme if:

• they have had a BCE under that pension scheme prior to 6 April 2024
• they are not in receipt of an annual statement from that scheme
• they have uncrystallised rights remaining within the scheme on 5 April 2024

This requirement would therefore include, for example, but is not limited to individuals:

• who do not have an actual entitlement to be paid a pension, have taken a partial UFPLS and have rights remaining within the scheme
• who have had a test against the LTA (under BCE5/5B) but have not taken any pension benefits
• who do not have an actual entitlement to be paid a pension, have transferred some of their rights over (under BCE8), and have rights remaining within the scheme

Question 31 — When should schemes begin to report against the new allowances on annual statements and stop reporting LTA percentages used?

Any statement issued to a member or legal personal representative in the tax year 2024 to 2025 in respect of benefits crystallised during the 2023 to 2024 tax year, when the LTA was in force, should notify an individual of their LTA percentage used.

However, any statement issued in the tax year 2024 to 2025 in respect of benefits crystallised from this tax year onwards should notify an individual of the monetary amount of their LSA and LSDBA used and not their LTA percentage used. To determine the monetary amount of an individual’s allowances used, schemes should assume the standard transitional calculation applies unless they have received notice that the individual is relying on a transitional tax-free amount certificate. Also see the question directly below.

Question 32 — How can schemes issue annual statements assuming the standard transitional calculation applies if they are unaware that a member has had a serious-ill health lump sum (SIHLS) under another scheme?

Paragraphs 128(3) and 128(5) to (6) of schedule 9 to Finance Act 2024 provide that, for the purposes of issuing statements to members showing their allowances used under that scheme, where members have crystallised benefits prior to 6 April 2024, schemes should assume that 25% of the member’s LTA used has been taken as tax-free lump sums.

However, paragraph 128(6)(a)(i) provides that, for the purposes of the lump sum and death benefit allowance only, where the member became entitled to a SIHLS under the age of 75, the scheme under which they became entitled to this benefit should assume that 100% of the member’s LTA used under that scheme was taken as tax-free lump sums. For clarity, no other registered pension scheme of which the individual is a member would be required to reflect this in their annual statements. See paragraph 128(6)(a)(i).

Should the member then have a relevant BCE under a scheme which did not pay the SIHLS, it is at this point that schemes would need to ask if they have received a SIHLS under age 75 in order to determine the individual’s available lump sum and death benefit allowance.

Question 33 — How can annuity providers convert LTA percentage used to monetary amounts of LSA and LSDBA used if they are unaware whether members hold a valid protection?

Where annuity providers are unaware that members hold a valid protection, they will need to assume that the member’s lump sum allowance is £268,275 and that their lump sum and death benefit allowance is £1,073,100.

Question 34 — What should an annual statement show where a member has a transitional tax-free amount certificate in force?

The draft process maps proposed one approach to the interaction between annual statements and transitional tax-free amount certificates. We are currently considering industry feedback on this point.

Question 35 — Why is there now a requirement for annual statements to be issued to members over age 75?

Members over 75 will now need to be issued with annual statements where they have a pension in payment because, unlike under the LTA, there is no test at age 75 against the new allowances. Therefore, these annual statements will be necessary for determining how much LSA and LSDBA a member has used should they then become entitled to a PCLS or UFPLS after age 75.

Question 36 — Can HMRC confirm that all RBCE statements, annual or one-off, should show the monetary amounts of LSA and LSDBA used and not available LTA?

We can confirm that all statements issued to members or to legal personal representatives of decreased members should state allowances used, and not the individual’s available allowances. Also see question 31.

Pension commencement excess lump sum (PCELS)

The February LTA Guidance Newsletter confirmed that there will be amendments to The Occupational Pension Schemes (Assignment, Forfeiture and Bankruptcy) Regulations 1997 (SI 1997/785) to ensure that a PCELS is payable by occupational pension schemes. To clarify, the PCELS will also remain payable by non-occupational pension schemes.

Further, it will not be compulsory for schemes to offer the PCELS. Schemes are not required to pay any of the authorised lump sums under Finance Act 2004. Pension tax legislation sets out what schemes can pay and the tax treatment of these payments. Where schemes do wish to offer the PCELS and cannot amend their rules in time for April 2024, paragraph 132 of schedule 9 to Finance Act 2024 provides a transitional provision, allowing references to the LTAELS to be read as references to a PCELS.

The February LTA Guidance Newsletter also provided further information on the legislative changes being made to ensure that the PCELS operates as intended from 6 April 2024. A draft copy of these regulations and draft Pensions Tax Manual guidance were both circulated to the LTA Working Group on 1 March 2024. That you for your feedback, we are working to update the draft guidance and will recirculate this shortly.

The regulations remove sub-paragraphs (2) and (3) of paragraph 3C of schedule 29 to FA 2004. The full conditions for paying a PCELS will be that:

• the member becomes entitled to it in connection with becoming entitled to a relevant pension
• it is paid when none of the member’s lump sum allowance or when none of the member’s lump sum and death benefit allowance is available
• it is paid within the period beginning six months before, and ending one year after, the day on which the member becomes entitled to it
• it does not reduce the rate of payment of any pension to which the member has become (actually) entitled, or extinguish the member’s entitlement to payment of any such pension
• it is paid when the member has reached normal minimum pension age (or the ill-health condition is met)
• it is not an excluded lump sum

Enhanced protection (EP)

Operation of the allowances and permitted maximums

Individuals with EP were never liable to an LTA charge, but until 6 April 2023 there were several events on which they could lose their protection, including if they contributed to any arrangements under a registered pension scheme.

As part of the changes introduced through Finance (No.2) Act 2023, the protection cessation events for EP were removed. As a result, the government introduced a cap on the maximum amount of a PCLS or SALS that these individuals can receive, set at the maximum amount they could have received as at 5 April 2023. This principle is extended under Finance Act 2024 following the complete abolition of the LTA.

For all individuals with EP, their LSDBA is set at the total value of their uncrystallised pension rights as at 6 April 2024. The permitted maximum for a SIHLS and each LSDB is then set at the maximum amount of each of those lump sums that could have been paid to or in respect of the member under that arrangement on 5 April 2024, less the non-taxable amount of any lump sum death benefit previously paid since that date.

For individuals with EP and no separate lump sum protection, their LSA is set at £375,000. The maximum PCLS they can take is therefore £375,000, as under the LTA.

For individuals with EP and protected lump sum rights of more than £375,000, their LSA is again set at £375,000. The amendments made to schedule 36 to Finance Act 2004, by paragraph 85 of schedule 9 to Finance Act 2024, currently set their LSA at “an amount equal to the maximum amount of a pension commencement lump sum that could have been paid to the member on 5 April 2023”. However, this new paragraph 29A will be removed through regulations. This will not alter the maximum amount of tax-free lump sums that individuals with EP and protected lump sum rights of more than £375,000 can take from 6 April 2024. This is because their permitted maximum for a PCLS and for a SALS is set at the maximum amount of those lump sums that could have been paid to the individual under that arrangement on 5 April 2023, less the amounts of any PCLS or SALS previously paid since that date. It does not depend on their available LSA or LSDBA, and so the LSA of £375,000 cannot limit their maximum PCLS or SALS. For PCLS, please see paragraph 82 of schedule 9 to Finance Act 2024 which amends paragraph 27 of schedule 36 to Finance Act 2004. For SALS, please see paragraph 95(5) of schedule 9 to Finance Act 2024, which inserts new article 25CB into the Amendments of the Taxation of Pension Schemes (Transitional Provisions) Order 2006 (SI 2006/572).

Individuals with EP will also not be able to take a PCLS after a serious-ill health lump sum has been paid under that arrangement. This is provided for by new paragraph 12(3B)(i) of schedule 36 to Finance Act 2004, inserted by paragraph 71 of schedule 9 to Finance Act 2024. This provision is necessary to ensure that an individual does not benefit from further tax-free lump sums because, unlike for most individuals, the payment of a serious-ill health lump sum to an individual with EP will not reduce their permitted maximum for PCLS, which does not reference available LSDBA.

Question 37 — If the permitted maximum for each lump sum is on a per arrangement basis in reference to 5 April 2023 or 2024, what happens if the member has transferred to a new provider since that date?

In such circumstances the permitted maximum would be nil. This does not put individuals in a worse tax position given that they would not previously have been able to transfer pension savings to a new provider and retain their EP, unless this was a permitted transfer. Individuals who applied for EP after 15 March 2023 are still unable to transfer to a new provider and retain their protection, unless this is a permitted transfer. We are considering whether further changes will be made to provide than an individual can retain their permitted maximum should they transfer to a new arrangement.

Question 38 — If the permitted maximum is separately specified for each lump sum death benefit under the arrangement in question, what happens if the type of benefit under the arrangement has changed since 5 April 2024?

These provisions state that the member’s permitted maximum is about that they “could have been paid” under that arrangement on 5 April 2024. This does not necessitate that the member has an entitlement to the payment already. For instance, in the case of a flexi-access drawdown lump sum death benefit, the permitted maximum is “the maximum amount of a flexi-access drawdown lump sum death benefit that could have been paid in respect of the individual on 5 April 2024 under the arrangement”. This does not necessitate that the funds are actually in flexi-access drawdown on or before 5 April 2024.

Transitional arrangements

For all individuals with EP, because their LSDBA is set at the total value of an individual’s uncrystallised pension rights as at 6 April 2024, any benefits previously taken are already reflected in their available allowance from 6 April 2024. We will therefore be bringing forward legislation, through regulations, which provides that these individuals are carved out from the transitional arrangements at paragraph 126 of schedule 9 to Finance Act 2024.

For individuals with EP and protected lump sum rights of more than £375,000, because their available LSA is not relevant for the purposes of calculating their permitted maximum for PCLS or SALS, any benefits previously taken are not relevant. We will therefore be bringing forward legislation, through regulations, which provides that these individuals are carved out from the transitional arrangements at paragraph 125 of schedule 9 to Finance Act 2024.

For individuals with EP and no separate lump sum protection, the standard transitional calculation at paragraph 125 of schedule 9 to Finance Act 2024 will apply. That is unless the individual chooses to apply for a transitional tax-free amount certificate.

Primary protection (PP)

Currently, individuals with PP and no separate lump sum protection can take a maximum pension commencement lump sum of £375,000. From 6 April 2024, their LSA is therefore set at £375,000 (see new paragraph 7(2) of schedule 36 to Finance Act 2004).

The standard transitional calculation at paragraph 126 of schedule 9 to Finance Act 2024 provides that an individual’s lump sum and death benefit allowance is, in most circumstances, reduced by 25% of their LTA used as at 6 April 2024. However, for individuals with PP, 25% of their LTA used may equal an amount greater than £375,000. Therefore, where this is the case, we will be bringing forward legislation through regulations to ensure that the maximum amount deducted from an individual’s lump sum and death benefit allowance is £375,000.

Overseas transfer allowance (OTA)

Transitional arrangements for OTA

The February 2024 LTA Guidance Newsletter confirmed that the government will bring forward the necessary transitional arrangements for the OTA through regulations, effective from 6 April 2024.

We can now confirm that, where members have crystallised pension benefits prior to 6 April 2024, their available OTA from this date will be reduced by an amount equal to 100% of the value of their LTA used as at 6 April 2024.

These changes will ensure that individuals can make tax-free transfers to Qualifying Recognised Overseas Pension Schemes (QROPS) up to the same value as they could have expected to benefit from under the LTA. An overseas transfer charge (OTC) will apply to any excess.

Reporting requirements for OTA

The December 2023 LTA Guidance Newsletter provided further information on the OTA and set out the two types of OTC which can apply from 6 April 2024.

Registered pension schemes should continue to use the APSS262 to report the transfer of funds or assets to a QROPS and provide details if the transfer is a taxable overseas transfer. This form will be amended so that schemes are able to report transfers subject to the OTC under both sections 244AC and 244IA of Finance Act 2004. The form will also require schemes to detail the member’s available overseas transfer allowance on the making of the transfer.

Registered pension schemes should also continue to use the APSS242 to request the repayment of tax deducted on a taxable overseas transfer.

Members of registered pension schemes should continue to use the APSS263 to give their scheme administrator the necessary information to transfer funds or assets to a QROPS.

Where members transfer pension savings from a registered pension scheme to a QROPS, there will be a requirement on the registered pension scheme to provide the member with a statement including:

• how much of the member’s overseas transfer allowance has been used by that transfer.
• if the transfer is taxable, the transferred value of the transfer and whether the overseas transfer charge arises under section 244AC or 244IA.
• if there is no overseas transfer charge under 244AC or 244IA, the reason why and, where applicable, the section under which it is excluded.

HMRC does not prescribe the format of these statements. These requirements are provided for through amendments, at paragraphs 116 to 118 of schedule 9 to Finance Act 2024, to regulations 12A and 14ZCA of The Amendments of the Registered Pension Schemes (Provision of Information) Regulations 2006 (SI 2006/567).