Pensions lifetime allowance abolished & annual allowance up to £60k
In last month’s Budget, Jeremy Hunt announced the end of the lifetime allowance for pensions, plus an increase in the annual allowance for pension contributions to £60,000, from this month.
In a welcome announcement by the Chancellor in his Spring Budget, the current lifetime allowance of £1,073,100 for pension savings will be abolished completed in April 2024. In the meantime, the lifetime allowance charge will be removed from this month, effectively making the lifetime allowance null and void, while the legislation is updated.
This means that business owners and high earners are encouraged to continue to working for longer, while able to continue making pension contributions.
However, the 25% tax-free lump sum that you can withdraw from your pension has now been capped at £268,275, which equates to 25% of the previous lifetime allowance of £1,073,100.
In a further welcome announcement, Jeremy Hunt also confirmed that the annual allowance for pension contributions of £40,000 would be increased to £60,000, also from April 2023.
With Corporation Tax increased to 25% from this month (and with a marginal Corporation Tax rate of 26.5% for profits between £50k and £250k pa) this is great news for successful business owners that were previously at or close to the limit, as they can now continue to make company contributions into their pensions, obtaining a welcome Corporation Tax saving from doing so.
Alongside these main changes, there is also an increase to the money purchase annual allowance, from £4,000 pa to £10,000 pa. This allowance applies to those who have started to draw on their pensions and limits the amount they can continue to contribute into the pension savings. This increase therefore adds some welcome flexibility for those aged over 55.
In addition, the minimum tapered annual allowance for higher earners is also increased from £4,000 pa to £10,000 pa from this month, with the adjusted income threshold increased from £240,000 to £260,000. This change allows high earners to pay more into their pensions, so that they can benefit from the associate tax savings.
As you will see in this month’s Insight article, we’re now able to offer independent financial advice on pensions and investments, through our new joint venture, KRW Financial Planning. So, if you have any questions on these changes then please contact Ben (link please to: bfoster@krwfinancialplanning.co.uk) or Alan (link please to: atytherleigh@krwfinancialplanning.co.uk) .
Key Facts
- Lifetime allowance charge removed this month, and abolished completely from April 2024
- Tax-free lump sum of 25% of pension savings remains, but now capped at £268,275
- Annual allowance for pension contributions increased from £40k to £60k from April 2023
- Money purchase annual allowance and lower threshold for high earners increased to £10k
- With Corporation Tax rates increased this month, this is welcome news for business owners
For further advice on this matter, please contact me.
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