Regulations have finally been laid before Parliament to correct errors that had been embedded into legislation when the lifetime allowance was scrapped.
The lifetime allowance was abolished back in April but there were mistakes in the original legislation, which the government needed to fix before certain clients could make changes to their pension.
In its newsletter back in April, HMRC advised some clients to delay taking their pension benefits or transferring until it was able to fix incorrect legislation.
At the time, the tax authority set out some examples where certain people should hold off making changes to their pension until LTA regulations were corrected.
The errors relate to any cash which involves:
- scheme specific tax-free cash protection (that is people who had the right to take more than 25 per cent tax free cash as at 5/4/2006);
- a transfer of a case with enhanced protection;
- enhanced protection and primary protection cases with protected lump sum rights of more than £375,000;
- the payment of a lump sum death benefit from funds which crystallised before 6 April 2024;
- any transfer from drawdown to a qualifying recognised overseas pension scheme (QROPS); and
- any transfer to a QROPS which involves pre-April 2006 benefits.
This was published a little over 24 hours before the LTA was due to be abolished, and at the time it said the “regulations will be made shortly”.
These regulations were laid yesterday (October 7) and are one of two sets of regulations needed.
According to Andrew Tully, technical director at Nucleus Financial, the amending regulations will not be passed into law until November 18, but the changes will be backdated to 6 April 2024.
Tully said while it was positive news these new regulations have reached Parliament, it is now more than six months since the incorrect legislation was introduced and many customers and advisers have been "left in limbo".
He added: “It’s a reminder of how poorly the abolition of the lifetime allowance has been implemented.
“It's important lessons are learned, and, in future, more appropriate timescales are put in place to introduce significant legislative change. And we need to remember continuous changes to tax rules discourage people from engaging with retirement saving.’
The LTA was scrapped in the 2023 Budget, with former chancellor Jeremy Hunt insisting it would be done by April 2024 despite warnings about the tight timeframe. This timeframe was reiterated in last year's Autumn Statement.
The legislation to abolish the LTA was pushed through in quick timescales and, as reported at the time, many industry professionals said there was insufficient time to deliver a change of this magnitude.
amy.austin@ft.com
