01 MAR 2024

Technical Newsletter - March 2024

Issue 4 - March 2024

BUDGET 2024

There has only been a small gap between the autumn statement and the spring budget and there was no great expectation of any last-minute pension changes. So, it was not a surprise that the budget held no real surprises for the pensions industry. Confirmation that the UK State Pension triple-lock was being preserved had also been widely trailed in advance and there was no additional information on the abolition of the Lifetime Allowance, only a suggestion to the opposition benches that reinstating it should they get elected later this year, would be unwise.

The chancellor again referenced his “pension for life” initiative, but only talked of “exploring the idea”. The chancellor also talked of the relative lack of pension investment in UK listed companies, compared with Australia, which has more of a “home” bias. However, he only announced that occupational Defined Contribution and Local Government schemes would be required to report where their funds are invested.

2024 is perhaps to be one of the most significant years in history from an electoral perspective, with around half the world’s population heading to the polls. In terms of the UK general election (currently widely expected to take place in late Autumn) we now wait to see if, as current polling predicts, we get an incoming Labour Government and whether they will reintroduce the Lifetime Allowance. Given the sheer complexity of the transitional arrangements, we hope that a pragmatic approach is taken by whoever is in power next year.

 

END OF TAX YEAR - CONTRIBUTIONS AND CONSIDERATIONS

As we approach the end of the tax year, IFGL Pensions are receiving plenty of enquiries about employer and individual contributions, as members seek to maximise use of their allowances before the start of the new tax year. This can be a complex subject, particularly when non-UK residents are involved, so here are a few helpful pointers:

1. It is important to understand that the Annual Allowance (£60,000 for 2023/24,) is the limit for how much an individual can pay into a pension each tax year. This limit includes contributions from all sources, so both individual and employer contributions. The maximum an individual can pay into a pension as a personal contribution and receive tax relief, is limited by their UK residency status and their income. For example, if someone has UK income of £30,000 and is a UK resident for tax purposes, this is the most they can contribute and receive tax relief.
2. If you have taken either an UFPLS (uncrystallised funds pension lump sum – ‘cashed out’), or have entered drawdown and started taking any income, the lower Money Purchase Annual Allowance (MPAA) of £10,000 will apply.
3. It is possible to carry forward unused tax relief from the previous three tax years, provided you were a member of a registered pension scheme at the start of the tax year you are looking to carry forward.
4. Employer contributions are not restricted by the employee income limit. If no previous contributions have been received in a tax year, usually a company can make the maximum £60,000 contribution to a SIPP. Whether that contribution will be eligible for tax relief by way of a corporation tax deduction will depend on whether it passes HMRC’s “wholly and exclusive test”. This is a complicated area where we recommend members, or their employer, obtain tax advice.
5. Finally, it is quite permissible for a non-UK resident to make a personal contribution into a UK SIPP, and this can be up to the annual allowance limit, where it is the first contribution made that tax year. It will however not receive tax relief and therefore care needs to be taken, to consider whether the member might pay tax on any income they take from their pension, depending on where they are domiciled and whether a dual taxation agreement is in place with the country they are resident in.
6. Individuals who have recently left the UK can normally continue to contribute to a UK pension scheme (including a SIPP) for up to 5 tax years, with contributions of £3,600 per annum gross eligible for tax relief. This can be a small but useful tax efficient planning tool for recent expats.

We hope this is helpful but welcome any specific case queries which can be sent to technical@ifglpensions.com.

 

ABOLITION OF THE LIFETIME ALLOWANCE

This is a subject that we covered in last month’s newsletter, but as we approach the new tax year here is a summary of what we know so far.

1. In their place will be two newly introduced allowances; the lump sum and death benefit allowance (LSDBA) and the lump sum allowance (LSA).
2. The LSDBA will be £1,073,100 (or higher where the member holds one of the transitional protections). The LSA will be £268,275 (again higher where a transitional protection certificate is held).
3. To replace the BCEs, a new “relevant benefit crystallisation event” has been introduced (RBCE).
4. The RBCE will be triggered when someone takes a benefit which involves a tax-free element, e.g. PCLS, UFPLS, serious ill health benefit, or a relevant lump sum death benefit (except a charity lump sum death benefit or trivial commutation lump sum death benefit).
5. Both the LSDBA and LSA will only be reduced by the non-taxable element of any payment.  For example, consider a scenario where someone takes an UFPLS of £400,000. In this case, £100,000 would be tax-free and the LSDBA and LSA will both be reduced by £100,000.
6. Transfers from a SIPP to a QROPS will be tested against the new overseas transfer allowance (OTA).
7. There is a new pension commencement excess lump sum (PCELS), which will enable members who have exhausted their LSDBA or LSA to take benefits in lump sum form.
8. Benefits taken above the LSDBA level will no longer be subject to the Lifetime Allowance charge but will be taxed at the recipient’s marginal rate.
9. There is no longer a specific age 75 test.

The new arrangements are proving to extremely complex (so much for pension simplification!), so again we recommend advisers with questions to submit them to the IFGL Pensions Technical mailbox.

We will be publishing a guide to the LTA abolition in due course, but for now hope that the information provided on this technical newsletter is helpful to our readers.

 

IMPORTANT NOTE IFGL Pensions cannot accept any responsibility for any action taken or refrained from being taken as a result of this information.