The following Personal Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:
The maximum amount that an individual can build up in pension savings is limited in two ways:
first, the annual allowance limits the amount that can be paid into pensions and benefit from tax relief (or the value attributed to increases in scheme benefits for defined benefits pensions). See the Annual allowance guidance note
second, the lifetime allowance limits the total tax-relieved value that can be accumulated into registered pension schemes. Its operation and the lifetime allowance charges that can arise are discussed below
The lifetime allowance was introduced from 6 April 2006. When a member of a scheme takes benefits in excess of his applicable lifetime allowance, he will be liable to a tax charge and the amount of the tax charge will depend on whether the excess benefits are taken as a lump sum or not.
The amount of the lifetime allowance has changed frequently:
Note that when the ‘standard lifetime allowance’ is referred to below, this means the figure in the above table for the applicable tax year.
From 6 April 2018, the lifetime allowance has increased annually in line with increases in the Consumer Price Index (CPI). This link between the CPI and the lifetime allowance has been removed with effect from 6 April 2021. The lifetime allowance is frozen at £1,073,100 for the tax years 2021/22 to 2025/26.
Members disadvantaged by the introduction of, or by reductions in, the lifetime allowance could apply to protect their pension savings. The various protections are discussed below.
Each time a member crystallises some benefits from a pension (known as a benefit crystallisation event (BCE)), the capital value of benefits drawn is calculated and the lifetime allowance prorated. The reduction is pro rata rather than £1 for £1 as the amount of the lifetime allowance has varied over the period since the rules were introduced in 2006.
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