Lifetime allowance and the lifetime allowance charge

By Tolley  in association with John Hayward
  • (Updated for Budget 2020)
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The following Employment Tax guidance note by Tolley  in association with John Hayward provides comprehensive and up to date tax information covering:

  • Lifetime allowance and the lifetime allowance charge
  • Introduction
  • The lifetime allowance from 6 April 2011
  • The lifetime allowance from 6 April 2014
  • The lifetime allowance from 6 April 2016 and online services
  • Lifetime allowance look-up service
  • Interaction with automatic enrolment
  • Retirement age and its impact on the lifetime allowance
  • Testing against the lifetime allowance
  • The lifetime allowance charge

Introduction

A lifetime limit on the total amount ofpension value that could benefit from tax relief was introduced with effect from 6 April 2006.

 

Tax YearAmount
2020/21£1,073,100
2019/20£1,055,000
2018/19£1,030,000
2016/17 - 2017/18£1,000,000
2014/15–2015/16£1,250,000
2013/14£1,500,000
2012/13£1,500,000
2010/11–2011/12£1,800,000
2009/10£1,750,000
2008/09 £1,650,000
2007/08 £1,600,000
2006/07£1,500,000

As from 6 April 2018 the lifetime allowance increases annually in line with increases in the Consumer Price Index CPI FA 2004 s 218 2A 2D

Testing against the lifetime allowance takes place at a benefit crystallisation event BCE Generally a benefit crystallisation event will occur when benefits are taken At the time ofthe introduction ofthe limit it was recognised that there were some people with pension rights already exceeding the lifetime allowance and that without protecting them in some way they would become subject to a lifetime allowance charge see below when benefits are taken Two forms ofprotection were introduced Primary protection was designed for those who as at 5 April 2006 already had pension rights that exceeded 1 5m So long as those individuals registered for primary protection before 6 April 2009 they received the benefit ofan enhanced lifetime allowance calculated by reference to the value ofthe individual s pension rights as of5 April 2006 The second form ofprotection enhanced protection was available to anybody whether or not the value oftheir pension rights at 5 April 2006 already exceeded the then lifetime allowance By undertaking not to accrue additional pension rights other than a limited exemption associated with defined benefit scheme membership the individual with enhanced protection benefits from an unlimited lifetime allowance Registration was necessary in order to benefit from one ofor both forms ofprotection PTM092410 The lifetime allowance from 6 April 2011 Finance Act 2011 reduced the lifetime allowance to 1 5m from 6

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