The Finance Act 2024 abolished the lifetime allowance (LTA). The LTA was the amount of savings you could have at retirement from all your pension scheme benefits combined, without incurring an additional tax charge.
The Government has replaced the LTA with two new tax-free lump sum allowances:
- the lump sum allowance (LSA) and lump sum – the LSA is £268,275 for the 2024/25 tax year and is the amount of tax-free cash you can take from your pension benefits.
- death benefit allowance (LSDBA) – the LSBDA is £1,073,100 for the 2024/25 tax year and is the amount of death benefits that can be paid tax free.
These new allowances apply to all your pension benefits.
Should you exceed the new allowances, an excess will be charged at your marginal tax rate. If you are impacted by these changes, we recommend you seek professional advice.
The annual allowance (AA) is the maximum amount of pension benefits you can save each year with the benefit of tax relief. For the 2024/25 tax year, it is £60,000, but if you have a high income or have started to draw money purchase benefits in a flexible way, your AA may be as low as £10,000 a year.