Lifetime Allowance (LTA)

The lifetime allowance has changed

On 15 March 2023, the Chancellor of the Exchequer announced changes to the lifetime allowance to support workforce retention.

The lifetime allowance charge was removed from 6 April 2023 and abolished in April 2024.

If you retire on or after 6 April 2023 there will be no lifetime allowance charge on the pension benefits paid to you. The maximum retirement lump sum, known as the pension commencement lump sum, you will be able to take tax-free is £268,275, unless you have lifetime allowance protection from HMRC.

New HMRC lump sum allowances from 6 April 2024

As part of their Spring Budget 2023, the government announced the removal of the lifetime allowance charge from 6 April 2023 and lifetime allowance from 6 April 2024.

The Finance Act 2024 amended the Finance Act 2004, the Income Tax (Earnings and Pensions) Act 2003 and other HMRC legislation. The lifetime allowance has been replaced with 3 new HMRC lump sum allowances from 6 April 2024.

The new limits are the:

lump sum allowance (LSA)
lump sum and death benefit allowance
overseas transfer allowance

From 6 April 2024 relevant lump sum payments must be checked and assessed against one or more of these allowances when a relevant benefit crystallisation event (RBCE) occurs. Any lump sum paid in excess of the limits are chargeable.

Relevant benefit crystallisation event (RBCE)

An RBCE occurs when a tax-free relevant lump sum is paid when you retire, if you’ve died or if you transfer your pension rights overseas, after 5 April 2024.

At each RBCE the relevant lump sum payment is assessed against one, or more, of these allowances.

1.A relevant lump sum payable from the HSC Pension Scheme for the purpose of the:

lump sum allowance is a pension commencement lump sum (retirement lump sum)

2. A relevant lump sum payable from the HSC Pension Scheme for the purpose of the lump sum and death benefit allowance is a:

pension commencement lump sum (retirement lump sum)
serious ill health lump sum
defined benefit lump sum death benefit (lump sum on death)

The payment of HSC Pension Scheme benefits as a trivial commutation lump sum or small lump sum payment does not use up any of these allowances.

3. Overseas transfer allowance is a transfer value payment to an overseas pension scheme.

The lump sum allowance

If you have an RBCE after 5 April 2024, you are entitled to a lump sum allowance (LSA) of £268,275 unless you have:

HMRC protection that gives you a protected right to a higher LSA

certain pension benefits in payment before 6 April 2024 that reduces your LSA

Your available LSA could be more (if you have previous lifetime allowance protection) or less (if you have previously crystallised and used some or all of the lifetime allowance) than the standard LSA of £268,275.

If some, or all, of your lump sum to be paid is more than your available LSA, the excess amount of the lump sum is subject to income tax at your marginal rate of income tax, as confirmed by HMRC.

You, or your legal personal representative, will be notified of how much of the LSA the relevant lump sum used.

The lump sum and death benefit allowance

This allowance also includes any payment of a serious ill-health lump sum.

If you have an RBCE after 5 April 2024, you are entitled to a lump sum and death benefit allowance (LSDBA) of £1,073,100 unless you have:

HMRC protection that gives you a protected right to a higher LSDBA

certain pension benefits in payment before 6 April 2024 that reduces your LSDBA

Your available LSDBA could be more (if you have previous lifetime allowance protection) or less (if you have previously crystallised and used some or all of the lifetime allowance) than the standard LSDBA of £1,073,100.

If some, or all, of your lump sum to be paid is more than your available LSDBA, the excess amount of the lump sum is subject to a tax charge.

You, or your legal personal representative, will be notified of how much of the LSDBA the relevant lump sum used.

Benefit crystallisation event before 6 April 2024

If you have been paid a tax-free lump sum that qualified as a benefit crystallisation event (BCE) before 6 April 2024, the amount of LSA and LSDBA that is available to you will be adjusted to take account of the previous lump sum payment(s).

How the allowances are adjusted depends on whether or not you have a transitional tax-free amount certificate.

Transitional tax-free amount certificate (TTFAC)

If you were paid a tax-free lump sum payment before 6 April 2024 which did not represent 25% of the capital value of your benefits paid, and you can provide evidence of this, you may wish to apply for a transitional tax-free amount certificate.

The certificate shows your previously used lifetime allowance amount expressed as a percentage of the standard lifetime allowance, your lump sum transitional tax-free amount and your lump sum and death benefit transitional tax-free amount. The certificate can then be used to determine your Lifetime Allowance and Pension Commencement Lump Sum.

Application for certificate

You, or your personal representative, do not have to apply to the HSC Pension Scheme for a certificate, you can apply to any registered pension scheme that you are a member of. You may wish to apply to the pension scheme that:

you expect to have your first RBCE with. An RBCE (Relevant Benefit Crystalisation Event) occurs when a tax-free lump sum is paid when you retire, if you’ve died or if you transfer your pension rights overseas, after 5 April 2024

were paid the majority of your pension benefits before 6 April 2024

You cannot make an application if you’ve had a RBCE after 5 April 2024. If you make an application, the certificate must be issued before the date of your first RBCE.

If you make an application, you must ensure that you include what HMRC calls ‘complete evidence’. Complete evidence must account for the total percentage of lifetime allowance used in all your BCEs (Benefit Crystalisation Events) before 6 April 2024, so that the scheme administrator can determine the portion of the pension benefits that were taken as tax-free lump sums.

When the scheme administrator assesses your application, they will decide if the evidence you have provided is sufficient for a certificate to be issued. If it is decided that you’ve provided insufficient evidence, your application will be refused.

You can apply again for a certificate after being refused by a scheme administrator due to insufficient evidence. However, complete evidence must be provided for an application to be reconsidered and be successful.

You are entitled to make a new application, following a refusal, if you have not had an RBCE. If you confirm that you’ve already had an RBCE your TTFAC application will be refused and you will not be allowed to reapply.

If you are making an application for a certificate to another pension scheme and require information about your HSC Pension Scheme lump sum to allow you to provide complete evidence to another scheme administrator, submit an ’Application for information for a transitional tax-free amount certificate’.

If you are making an application to us, HSC Pensions, you need to complete the HSC Pensions Transitional Tax Free Amount Certificate Application Form and provide complete evidence. A completed application form can be sent to hscpensions@hscni.net or write to HSC Pensions at:

HSC Pensions
Orchard House
40 Foyle Street
Derry
BT48 6AT

HMRC has published a tool for you to check if you can apply for the TTFAC, this can be found at https://www.tax.service.gov.uk/guidance/Check-if-you-can-apply-for-a-Transitional-tax-free-amount-certificate/start.

The application form also has questions to help you decide if a TTFAC is required.

Be aware not all members will benefit from a TTFAC, and it is the members responsibility to check if the certificate is suitable for their circumstances.