HM Revenue & Customs is set to issue a second set of regulations changing the legislation on the lifetime allowance abolition, after it identified issues that will not be resolved by the time the new rules come into effect from 6 April 2024.
In the Spring Budget 2023, Chancellor Jeremy Hunt announced that the lifetime allowance, which is set at £1,073,100, will be completely removed from tax legislation from 6 April 2024, leaving a tax regime where pension savers can take as much income as they want from their pension and checks will only be made on lump sums taken.
However, in a newsletter published on Thursday, HMRC said it will issue a second set of regulations to make “further minor technical changes” to achieve this outcome.
The Finance Act 2024, which sets out the main legislation for the abolition of the lifetime allowance, includes a ‘Henry VIII’ clause allowing the Treasury to make subsequent changes to the primary legislation through regulation.
But Tom Selby, director of public policy at AJ Bell, said further changes would create fresh challenges for advisers as they grapple with the new regime.
Selby said: “The decision to abolish the lifetime allowance was a huge positive for many savers, removing an unfair tax penalty for long-term saving. However, the changes have been rushed and there are still issues that will not be resolved by the time the new rules are in place on 6 April.
“As a result, the government will need to make changes to the rules post-implementation. This is far from ideal and means financial advisers, savers and providers will find the switch to the new regime this year hugely challenging. This clearly increases the risk of things going wrong and runs counter to the FCA’s Consumer Duty, which requires firms to avoid foreseeable harm.
“This potential source of harm was obvious for all to see and yet the government has ploughed ahead regardless.”
While HMRC has not specified the changes, AJ Bell said it hopes they will include changes to the rules giving those pension savers with enhanced protection a higher lump sum allowance, as well as clarification for those who have scheme-specific lump sum protection.
