On the 15th March 2023 the Chancellor announced that the Lifetime Allowance (LTA) on UK pension funds will be abolished from April 2024. The Lifetime Allowance tax charge has been removed from the 6th April 2023. The Chancellor also announced an increase in the Annual Allowance from 6th April 2023.
Removal of the LTA tax charge from the 6 April 2023 means no-one will incur the charge from this date. This allows you to transfer funds into an overseas QROPS without incurring tax above the previous LTA limit.
If you leave your pension in the UK, the upper limit on the tax free cash that you can withdraw from your pensions is 25% of the current LTA (£268,275) from 6 April 2023, unless you have protections that entitle you to a higher level. The annual allowance will also be increased from £40,000 to £60,000 per year.
The rationale for removal of the LTA charge is to encourage experienced highly skilled workers to stay in the workforce. Since the Covid 19 pandemic the UK economy has experienced high levels of economic inactivity, with 7 million people of working age (excluding students) not currently working, and around 1 million jobs currently unfilled.
What is the impact of these changes for pension transfers to New Zealand?
If you have a large UK pension fund in Jersey, Guernsey or the Isle of Man, you can now transfer these pensions to New Zealand without having to pay the lifetime allowance charge. Previously you could have been taxed in the UK at 25% on the amount above the lifetime allowance amount.
- The Lifetime Allowance charge will be removed from April 2023 before the Allowance is abolished entirely from April 2024.
- The maximum Pension Commencement Lump Sum for those without protections will be retained at 25% of the current LTA (£268,275) and will be frozen thereafter.
- The taxation of the LTA excess lump sum, serious ill-health lump sum (SIHLS), defined benefits lump sum death benefit (DBLSDB), and uncrystallised funds lump sum death benefit (UFLSDB) will change such that where they are currently subject to a 55% tax charge above the LTA, they will instead be taxed at an individual’s marginal tax rate.
- Legislation will be introduced in a future Finance Bill to remove the LTA from pensions tax legislation.
Note: The UK Labour party has indicated that if they are elected they may reverse this decision.