PTM176310 - Lump sum and lump sum and death benefit allowance: Enhanced protection: Overview
If you are looking for information about protections, lifetime allowance and the lifetime allowance charge pre-April 2024 please see National Archives.
Introduction
Enhanced protection with primary protection
Cessation of enhanced protection
Notification to HMRC
Penalties
Transfers and the permitted maximum
Introduction
Individuals who had certain rights at 5 April 2006 could apply to HMRC for enhanced protection (EP) to protect them from the lifetime allowance charge when those rights came into payment after 5 April 2006.
Individuals could claim enhanced protection regardless of their value of their pension rights at 5 April 2006. Individual’s that had valid enhanced protection were not liable to the lifetime allowance charge on any benefit crystallisation event and could not take a lifetime allowance excess lump sum. An individual could protect their pension rights plus any separate lump sum rights.
As of 6 April 2024, lifetime allowance has been abolished, but an individual is entitled to have their lump sum allowance and lump sum death benefit allowance protected.
Lump sum allowance with EP
For an individual with enhanced protection, but no lump sum protection, their lump sum allowance will be £375,000. When an individual has a relevant benefit crystallisation event (see PTM173000) the lump sum will then be deducted from the lump sum allowance – anything in excess of £375,000 will be subject to income tax at the individual’s marginal rate.
Lump sum and deathh benefit allowance with EP
The individual’s lump sum death benefit allowance will be the amount equal to the value of their uncrystallised pension rights on 5 April 2024. When an individual has a relevant benefit crystallisation event the lump sum will be deducted from the lump sum death benefit allowance – anything in excess of the value of their uncrystallised pension rights on 5 April 2024 will be subject to income tax at the individual’s marginal rate.
If an individual had any benefit crystallisation events occur prior to 6 April 2024 then they will need review the transitional calculations with enhanced protection at PTM174400.
Enhanced protection with primary protection
Individuals with pension rights valued at more than £1.5 million on 5 April 2006 could have notified HMRC that they wished to claim both enhanced protection and primary protection. Where they did the claim for enhanced protection took precedence – the individual’s protection will operate on an enhanced protection basis unless it is lost.
Where enhanced protection ceases the individual’s protection defaults to primary protection, you can read more about primary protection at PTM176210.
Cessation of enhanced protection
An individual with valid enhanced protection prior to the 15 March 2023 can accrue benefits, transfer or join new arrangements without risk of losing their protection.
For enhanced protection certificates issued on or after the 15 March 2023, the rules for enhanced protection vary and the individual can have a cessation event occur. For more information about cessation events please see PTM176340.
Notification to HMRC
To claim enhanced protection an individual must have notified HMRC of their intention to rely on this protection. The notification must have been made on or before the 5 April 2009, and not before 6 April 2006.
On receipt of the form, HMRC processed the form and issued a certificate with a unique reference number to the individual. Valid late applications can still be made.
Guidance on the notification process can be located on the National Archives.
Penalties
Section 261 Finance Act 2004
An individual who fraudulently or negligently provides false or incorrect information or documents in connection with a notification may be liable to a penalty.
Transfers and the permitted maximum
For information about an individual’s enhanced protectionpermitted maximum in the event that they have transferred providers since 5 March 2023 or 5 March 2024 please see the pension scheme newsletters.