A tax-free lump sum may be withdrawn (known as a pension commencement lump sum - PCLS). The maximum amount was 25% of the pot of of the lifetime allowance (if lower). Therefore, with the lifetime allowance of £1,073,100, the cap was £268,275 (25% x £1,073,100). This was the case unless the taxpayer had a level of higher allowance protection.
The lifetime allowance of £1,073,100 is the maximum amount of tax-relievable pension savings which an individual can accrue over his working life. Where the pension pot exceeds this figure, the excess is subject to a lifetime allowance charge and the rate of this depends on how the excess is withdrawn. However, in second Finance Act of 2023 the lifetime allowance charge has been abolished from 2023/24.
Also, in the second Finance Act of 2023 the annual allowance was increased from £40,000 to £60,000. This is the maximum amount of funding that can be put into a pension and to obtain tax relief.
The “adjusted income” threshold was also increased from £240,000 to £260,000. This is the level at which tapering of the allowance allowance applies to high earners (subject to the minimum tapered amount of £4,000 (now £10,000).
Finally, the money purchase annual allowance increased from £4,000 to £10,000. This allowance applies to individuals who have flexi-accessed their pension funds.
The lifetime allowance is being replaced by a new system. All tax-free lump sums, including tax-free lump sum death benefits, are instead to be tested against a lifetime limit which will be set at £1,073,100. Any lump sums paid above this level will be taxed at the individual’s marginal rate of income tax.
Declaimer: The above is intended to be only a brief and broad overview of the topic as at the date of writing and is for general information use only. It is in no way intended to be taken as advice or acted upon. We strongly recommend that you obtain appropriate independent professional advice before you take any actions or make any decisions in this area.
Comentarios