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Lump Sum Allowance 25% tax free

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The pension LSA (25% tax free) stands at £268275 maximum.  There are rumours it may change (reduce) at the next budget in October/November 2025.  If that is the case, does anyone know how quickly the change would be made?  Can it change overnight?  Does it need legislation or in any case would need apply no earlier than the next tax year onwards ie April 2026?   Despite much searching online I can’t find an answer to this question! 
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  • Silvertabby
    Silvertabby Posts: 10,153 Forumite
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    Sorry, no crystal balls here.
  • El_Torro
    El_Torro Posts: 1,886 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    Theoretically the government could make it active from the day it's announced, or even retrospectively. Giving some warning is more likely though, at least until the next tax year. 

    In my opinion no government (current or future) is going to reduce the tax free amount you can take from a pension. It's much more likely that they'll just leave it as it is, allowing fiscal drag / inflation to reduce its value. 
  • mdej29
    mdej29 Posts: 3 Newbie
    First Post
    Thanks Exodi.   I won’t do anything rash.  Your thoughts run close to what others have said.  However, what I’m not clear on is whether any change could hypothetically be introduced  overnight or whether there are hoops to go through such as legislation or some sort or rules that would push the change into TY2026/2027.  I had previously been advised that legislation is needed but can’t verify that.  
  • MTB1986
    MTB1986 Posts: 52 Forumite
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    mdej29 said:
    Thanks Exodi.   I won’t do anything rash.  Your thoughts run close to what others have said.  However, what I’m not clear on is whether any change could hypothetically be introduced  overnight or whether there are hoops to go through such as legislation or some sort or rules that would push the change into TY2026/2027.  I had previously been advised that legislation is needed but can’t verify that.  
    A major change like that would almost certainly require new primary legislation, i.e. a new act of parliament and would likely be announced in a budget and then legislated through parliament. 
  • badmemory
    badmemory Posts: 9,637 Forumite
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    Have you considered who gains if lots of people believe this rumour like they did the previous one.  Sounds to me like the current government would be damned if they do or not.  Now just who would have an interest in that happening.
  • JoeCrystal
    JoeCrystal Posts: 3,334 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    edited 6 August at 1:06PM
    It depends on if it is primary legislation or secondary legislation. The primary legislation is the Acts, while secondary legislation includes Statutory Instruments and other regulations that are granted powers by the provisions of Acts to Ministers. If it helps, the abolishment of the Lifetime Allowance and replacing it with the Lump Sum Allowance was done by secondary legislation with the amounts in the SI granted by the Finance Act 2024 (which can modify past Acts as needed). However, there are allowance figures in the Finance Act 2024. But I am not sure if there is any primary legislation giving ministers the power to change it.

    But it would be silly for the ministers not to have the power to adjust the numbers by the SIs as they often do on all other countless numbers and figures.

    These legislations are rather convoluted, to be honest, and I did try to find them.
  • mdej29
    mdej29 Posts: 3 Newbie
    First Post
    Thank you for the responses.  My question feels like it’s a technical query that should have an oven-ready answer. I’ve looked for ways to submit a formal question but can’t seem to find a way!   
  • Exodi
    Exodi Posts: 3,964 Forumite
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    edited 6 August at 2:14PM
    I'm trying to work out if I'm taking an ever-increasing interest in politics, or if the rumour-mills are ramping up their output in recent times.

    From what I've seen so far, the Autumn budget is expected to contain income tax rises, axing of the triple lock, reducing the tax free lump sum, stopping the higher rate and additional tax relief on pensions, cutting of the cash ISA allowance, NI on landlords, continued freezing of income tax thresholds, wealth taxes, fuel duty cut ending, the list goes on. And that's not even including the significant amount of speculation around capital gains tax, inheritance tax or corporation tax.

    That's why I wouldn't bother getting worked up over everything and just wait - pointless to plan around speculation and rumours, especially from outlets which are motivated to create eye-catching articles (like the "labours coming for your pensions" earlier this year) which ended up amounting to nothing. As I said before, this forum was flooded with people trying to put money back in their pensions.
    Know what you don't
  • DRS1
    DRS1 Posts: 1,262 Forumite
    Part of the Furniture 1,000 Posts Name Dropper Combo Breaker
    One Oven ready answer coming up.

    Changes announced in the budget CAN take effect on budget day (eg the CGT change last year).

    The fact that it may need primary legislation to enact doesn't stop that primary legislation being backdated to the day the change was announced.  The Finance Act each year is passed quite a while after budget day.

    The fact that they COULD do it doesn't mean they WILL do it.
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