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LTA Abolishment

The Government’s surprise announcement to abolish the LTA from 2024/25 tax year onwards, has certainly brought the pensions industry back into the limelight. Unfortunately, it shifted the focus on political ping pong, instead of considering the real point of encouraging different working behaviours, but we do know this is on the horizon for next tax year and one of the fundamental processes which is woven into guidance and pension scheme rules, will be removed.

With the dust settling, we have joined the HMRC LTA focus group to work through their proposals on how to unwind the current LTA from the existing tax legislation. There is a very real challenge to achieve HMRC’s changes by a very tight deadline, so it’s expected that administration systems will drive the success of this change. HMRC have released details via newsletters and meetings on how the LTA excesses should be taxed now and a few indications on what might be in store for the abolishment. They have confirmed that the concept of the LTA is still in place, and even though this year they will take a pragmatic approach to LTA testing, there will be a requirement for a ‘cap’ to be introduced to determine the amount of PCLS available for members.

Capturing a member’s pot value at the 5 April 2023, is required for the ongoing calculations for a protected member’s PCLS entitlement. However, concerns have already been highlighted that this is not so easily done for SIPP and SSAS members, where this information is not readily available. Also, some LTA protections can still be applied for or revised. Protections obtained today, will still be based on the current rules and a reference to an LTA will still need to be retained. Both requirements could bring in an extra layer of complexity to LTA testing and the available PCLS in the future.

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