Pension Lifetime Allowance changes from 1 April 2023

The lifetime allowance charge was abolished by Finance (No.2) Act 2023 s18 with effect from 6 April 2023, although other tax charges can apply in its place.

Under Finance (No.2) Act 2023 s19, benefits that would have otherwise suffered a 55% lifetime allowance charge are instead treated as pension income of the recipient and taxed as pension income of individual. The benefits affected by this rule are:

• serious ill-health lump sums;
• lifetime allowance excess lump sums;
• defined benefits lump sum death benefits; and
• uncrystallised funds lump sum death benefits.

For an additional rate taxpayer, this can effectively be a rate cut from 55% to 45%. The exact effect depends on the taxpayer’s particular circumstances, however. For example, the tax cost could be higher if the extra income reduces allowances. It could be lower if the individual has lower rate bands or tax reliefs available.

In TaxCalc, to accommodate the correct treatment for pensions lump sums after the abolishment of the lifetime allowance charge, we have updated the section under ‘Pension income and benefit’. From 6 April 2023 you will be using ‘Pension, Annuity or Lump Sums’ section.

PLEASE NOTE: If your contributions had enhanced protection for the 2023-24 tax year the lifetime allowance excess tax charge may not apply to you. If this is the case you will not need to enter data in Taxable Lump Sum pension type. For more information click here.

For more information about Lifetime allowance charge abolition for Tax year 2023-24 please click here

Note – ‘Pensions – Lifetime Pension Allowance’ section should not be used from 06 April 2023.

Where do I enter Pension, Annuities and Taxable Lump Sums

HMRC forms mode-

If you have pension income (other than State pension), retirement annuities and taxable lump sums in the tax year then as per HMRC guidance you will input data on - Page TR 3>box 11 and tax taken off on Page TR 3>box 12. These boxes will take you to the relevant wizard for data entry.

Simple steps mode-

Please use the updated section under ‘Pension income and benefits’ > ‘Pension, Annuity or Lump Sums’

We have provided a drop down list for you to select the relevant pension type based on your scenario. Fill in gross amount and tax taken off: