The LTA up to 5 April 2024
If the value of your pension benefits when you took them was more than the lifetime allowance, or more than any protections you held, you had to pay tax on the excess benefits. This did not include any State Pension, State Pension credit or partner’s or dependant’s pension you are entitled to.
The LTA covered any pension benefits you had in all tax-registered pension arrangements – not just the LGPS. Each time you took payment of a pension benefit, the capital value of the benefits taken used up a percentage of your LTA.
The capital value of pensions that you took after 5 April 2006 is your annual pension multiplied by 20, plus any lump sum you take from the pension scheme.
If you have a pension that was first paid before 6 April 2006, this will also be treated as using up part of your LTA. For these pensions, the capital value is the current annual pension multiplied by 25. Any lump sum you received is ignored.
The LTA from 5 April 2024
From 6 April 2024 the LTA is abolished.
The Finance Act introduced 2 new allowances from 6 April 2024:
- Tax-free cash from a pension fund is tested against the Lump Sum Allowance (LSA), which is set at £268,275.
- A Lump Sum and Death Benefit Allowance (LSDBA) of £1,073,100 tests both tax-free cash sums and pension death benefit lump sums.
These allowances are used up by the payment of relevant tax-free lump sums.
Amounts above these allowances will be taxed at the member or beneficiary’s marginal rate.
Any relevant benefit crystallisation event (RBCE) takes place when a relevant lump sum is paid and a check against the new lump sum allowances is performed.