Technical consultation on LTA abolition draft amendment regulations
Kirsty Cotton, Dave Roberts | August 20, 2024
On 7 August 2024, HMRC published newsletter 161. This confirmed officially a short and informal technical consultation on The Pensions (Abolition of Lifetime Allowance Charge etc) (No. 2) and (No. 3) Regulations 2024, which HMRC had circulated to interested parties, including WTW, on 24 July 2024.
These draft Regulations aim to correct errors/omissions in the legislation introducing the successor regime to the Lifetime Allowance (LTA). The corrective Regulations (59 pages) will have backdated effect to 6 April 2024 and cover a multitude of issues including where trustees and administrators may have placed benefits on hold for some months.
The short period of informal consultation ended on 14 August, with an intention to lay the regulations "as soon as the parliamentary timetable permits after the summer recess".
WTW comment
Spring Budget 2023 announced the removal of the LTA from UK
pensions tax legislation from 6 April 2024. A control was still
needed in relation to the payment of tax-free lump sums, and this
takes the form of a new Lump Sum Allowances regime, similarly with
effect from 6 April 2024. This was a mammoth task and so some
elements were unfinished at the changeover date. In newsletter 158, HMRC
itemized some of the outstanding points, the more significant of
which WTW has been liaising with HMRC on for some time eg problems
with the scheme-specific lump sum (SSLS) determination.
HMRC appears to have used the break imposed by the General Election
to good effect, with the draft regulations generally delivering
what we had been expecting. We hope that the certainty of intention
will enable more schemes (that have not yet adopted a workaround)
to recommence payment of benefits currently on hold.
In terms of legislative intent, one notable exception is lump sum
death benefits paid from funds which crystallized prior to 6 April
2024 – Question 20 of the
FAQs published alongside pension scheme newsletter 159,
acknowledged that the permitted maximum could still limit the
tax-free amount that can be paid, and stated that this was not
intentional and would be corrected. We have asked HMRC how this is
addressed by these Regulations, although acknowledge that these
benefits are, in any event, paid gross by schemes as, even if
taxable, income tax is levied on the recipients later, after the
end of the tax year by HMRC.
Further, we are pleased that HMRC took on board some other issues
raised by WTW, particularly in relation to the new transitional
tax-free amount certificates (TTFAC). This will make the process
more manageable, especially for death benefits as personal
representatives will have an extended period to apply for a
TTFAC.
There were also some changes proposed that had not been signposted
in newsletters and so were unexpected, such as the valuation
approach for trivial commutation payments. This is, in effect,
reverting to that under the LTA regime – and backdated to 6
April 2024.
There are possible other changes that would have been welcome but
did not feature. These include removing the limit on authorised
dependants scheme pensions on death after age 75 and delinking the
pension commencement excess lump sum from any entitlement to
pension. We recognize that the priority is the immediate issues
that are potentially delaying benefit payments, but there must now
be doubt as to when, or even whether, these will be
addressed.
Although the newsletter only commits to legislation "as soon
as the parliamentary timetable permits", we hope that HMRC
has, by now, agreed a date with the government's business
managers and that this will be in September. We would not expect it
to publish the date as the parliamentary timetable needs to retain
flexibility and to do so would be hostage to fortune.
There are two sets of Regulations. This is because some measures
could impose additional tax on individuals (with backdated effect)
and these need to be made under the 'affirmative
procedure' whereby they need to be actively approved by
Parliament. The corrections to the SSLS fall under these
Regulations. Other measures potentially reduce the tax due and will
be made under one of the 'negative
procedures' whereby the legislation comes into force unless
an objection is made. These include the changes related to TTFACs.
We expect this to mean that the 'negative' Regulations
would not come into force until at least 21 days after being laid
before Parliament.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.