When does the announced change to the LTA actually come into effect (legally)

deaglecat

Hi, as we know the announced abolition of the LTA from 6th April 2023.   https://www.gov.uk/government/publications/abolition-of-lifetime-allowance-and-increases-to-pension-tax-limits/pension-tax-limits

My question is whether it is safe to proceed with his policy announcement ahead of it becoming law (presumably in some future finance bill) ?

I am just trying to understand the risk of breaching the current LTA and then finding the govt changes its mind under political pressure.   

Thoughts ?

leosayer

As I understand it, the Finance Bill passed the week after the budget and will take effect from 6th April 2023. So it is law.

However it's important to note that this bill doesn't abolish the LTA, instead it reduces the tax charges from 25% and 55% to 0%. It also introduces a maximum tax-free cash amount of £268,275.

I read somewhere that the government are consulting on the implications of abolishing the LTA in order to draft the next Finance bill that will take effect from 6th April 2024. The idea here is that they can word the changes in a way that doesn't create a huge administrative headache or unintended consequences pension providers, the government and for savers.

The only thing you can be certain of is the current law and guidance. Of course, a future government could change anything but it would be pretty unfair for a future government to reintroduce the LTA without something similar to the individual protections that were previously in place.
 
Personally, my pension saving were close the LTA but given the recent changes I have massively increased my contributions.

deaglecat

Thanks for the reply.    I can find the relevant budget motion https://votes.parliament.uk/Votes/Commons/Division/1501 but I don't think a new finance bill  per-se has been passed.  

Like you, I am close to... and could exceed the LTA in the next 2 days, if I add to my SIPP.   

dunstonh

Hi, as we know the announced abolition of the LTA from 6th April 2023.   https://www.gov.uk/government/publications/abolition-of-lifetime-allowance-and-increases-to-pension-tax-limits/pension-tax-limits

Not quite.  It announced it from 2024.    For 2023/24 it is still recorded but set to zero.

My question is whether it is safe to proceed with his policy announcement ahead of it becoming law (presumably in some future finance bill) ?

No.  And seeing as it will still be recorded in 23/24 and the risk of Labour reinstating it means it is probably better to wait until 24/25 when, in theory, it would not be recorded.

However, the maximum tax free cash still needs to be recorded and currently that uses the LTA.  So, the record may continue to be recorded, allowing for it to be reinstated easily at a later date.   Whilst retrospective taxation is unlikely, those that have not fully crystallised could find they need to change their plans again.

I am just trying to understand the risk of breaching the current LTA and then finding the govt changes its mind under political pressure.   

This Government won't change its mind as there is no pressure.  It's turned out to be a vote winner.  Labour have said they would reverse it but already the teachers, firefighters and police unions/member groups have come out and said they should have carve out for them too just like the doctors.      The feeling appears to be that Labour are just saying they will reverse it to appeal to low earners who don't think anyone should have wealth but will quietly forget about it by the time they get in power as it would stir up a hornets nest unnecessarily for what is actually a very small amount of revenue.

leosayer

deaglecat said:

Thanks for the reply.    I can find the relevant budget motion https://votes.parliament.uk/Votes/Commons/Division/1501 but I don't think a new finance bill  per-se has been passed.  

Like you, I am close to... and could exceed the LTA in the next 2 days, if I add to my SIPP.   

Here it is:
https://bills.parliament.uk/bills/3435

deaglecat

Thank you @leosayer.   Your search skills exceed mine.    It has passed 2nd reading and is now at the committee stage... then there is the House of Lords with a target conclusion of 23rd May.    

dunstonh  agree that labour may reverse it, but in my case, I will already have retired and I have strong doubts that the govt would ever try to retrospectively impose a tax charge.    Indeed there is potential for an unwanted stampede of rushed retirements (e.g. amongst senior doctors) if Labour tabled tangible plans to enact a reversal.

Oh well... a small risk of reversal then.

Pat38493

leosayer said:

It also introduces a maximum tax-free cash amount of £268,275.

I don't think this was even needed because the tax free limit was forced to this amount by the existence of the LTA, so just by changing the charge rates for LTA charges to zero, the tax limit of 25% of the LTA remains law.  

Scot_39

deaglecat said:

Thanks for the reply.    I can find the relevant budget motion https://votes.parliament.uk/Votes/Commons/Division/1501 but I don't think a new finance bill  per-se has been passed.  

Like you, I am close to... and could exceed the LTA in the next 2 days, if I add to my SIPP.   

Iirc - you don't need a whole new finance bill to drop the 55 and 25 tax rates - just a tax rate revision - was one article viewpoint in order to achieve Apr 6 above lta withdrawal charges change.

Guess same for final salary DB charges for Drs etc.

But you do to lock in the current 25% cap on tax free - which isnt changing Thurs - and delete the 1.07m actual LTA concept.

There are no plans AFAIK to extend the 25% tax free - only remove the punitive 55% lump sum 25% income tax add ons for benefits above the 1.073m..

Although indexing it would be nice. Given past cuts why we are in the current mess.

But given pa etc isn't that would be pounced on as tax cuts to wealthy.

tiring33

dunstonh said:

No.  And seeing as it will still be recorded in 23/24 and the risk of Labour reinstating it means it is probably better to wait until 24/25 when, in theory, it would not be recorded.

You say it is probably better to wait until 24/25 when the LTA test will, in theory, not be recorded, but I'm wondering whether 23/24 would actually be best.

For those over the LTA and wanting to 'lock in' the 0% tax rate, wouldn't it be better to have a formal record that you have 'paid' the LTA charge (at 0%) on your fund. If a future Government reintroduced the LTA surely they couldn't ask you to 'pay it again', just because they didn't like the 0% rate at the time.

I'm over the LTA and would rather like to know my entire fund had passed over the current LTA hurdle and was sitting in a crystallised drawdown account. Obviously this means taking my full PCLS, but I would be happy to re-invest that outside the pension tax wrapper if it's a way of more securely locking in the benefit of the LTA changes.

Albermarle

 Obviously this means taking my full PCLS, but I would be happy to re-invest that outside the pension tax wrapper if it's a way of more securely locking in the benefit of the LTA changes.

With the reduction in CGT and dividend tax free limits , then an invested £250K outside a pension, will be most likely liable to significant taxes, plus will bring more admin for you monitoring it all.

You can get £20K pa into a S&S ISA but could take some years to salt it all away.

Sterlingtimes

leosayer said:

Here it is:
https://bills.parliament.uk/bills/3435

Thank you. There are few words in the Bill concerning LTA, so it is very clear:

18 Lifetime allowance charge abolished 30 (1) No lifetime allowance charge arises for the tax year 2023-24 or any subsequent tax year. (2) Subsection (1) does not affect the continued operation of any provision of 35 Part 4 of FA 2004 (pension schemes etc) so far as it has effect for purposes other than that of determining a person’s liability for the lifetime allowance charge.

That abolishes the 75th birthday present from HMRC.