The Pensions (Abolition of Lifetime Allowance Charge etc) (No. 3) Regulations 2024

Explanatory Note

(This note is not part of the Regulations)

These Regulations amend Schedules 29 and 36 to the Finance Act 2004 (“FA 2004”) and subordinate legislation to make further consequential provision in connection with the removal of the lifetime allowance and the lifetime allowance charge by the Finance (No. 2) Act 2023 (c. 30) and the Finance Act 2024 (c. 3).

References in this Explanatory Note to “FA” followed by a year are to a Finance Act of that year.

The amendments made by these Regulations have effect for the 2024-25 tax year and for subsequent tax years.

Paragraph 134(2)(b) of Schedule 9 to FA 2024 allows regulations to be made after 5 April 2024 so as to have effect for the tax year in which they are made.

Regulation 2 amends Schedule 29 to FA 2004 as to the definition of “the applicable amount” in relation the calculation of the permitted maximum for a pension commencement lump sum which is paid in connection with a scheme pension paid under either a defined benefits arrangement or a collective money purchase arrangement. It also makes provision as to the calculation of the value of a member’s relevant crystallised pension rights for the purposes of the trivial commutation lump sum.

Regulation 3 amends Schedule 36 to FA 2004.

Paragraph (2) of regulation 3 inserts a new sub-paragraph (2A) into paragraph 20 of that Schedule which modifies the application of section 2441C of FA 2004 as to the availability of a member’s overseas transfer allowance where that member had a pension in payment before 6 April 2006.

Paragraph (3) of regulation 3 substitutes sub-paragraph (5) of paragraph 20A of that Schedule so that the pension credit factor is calculated by reference to the amount of the standard lifetime allowance (“SLA”) at the time at which the pension credits from previously crystallised rights were acquired. It also inserts a new sub-paragraph (10) into paragraph 20A to provide that the “standard lifetime allowance” in that paragraph has the same meaning as it had in Part 4 of FA 2004 as it applied to the individual in the tax year in which those pension credits were acquired.

Paragraph (4) of regulation 3 amends paragraph 20C of that Schedule so that the non-residence factor in relation to the benefits accrued under a money purchase arrangement whilst non-resident is calculated by reference to the SLA.

Paragraph (5) of regulation 3 amends paragraph 20D of that Schedule so that the non-residence factor in relation to benefits accrued whilst non-resident under an arrangement that is not a money purchase arrangement is calculated by reference to the SLA.

Paragraph (6) of regulation 3 amends paragraph 20E of that Schedule to make provision for the calculation of the recognised overseas transfer factor to be calculated by reference to the SLA.

Paragraph (7) of regulation 3 amends paragraph 31 of that Schedule so that the tax treatment of a pension commencement lump sum, the permitted maximum of which is determined under paragraph 2 of Schedule 29 to FA 2004 as modified by paragraph 34 of Schedule 36, is as provided for in paragraph 34A of Schedule 36.

Paragraph (8) of regulation 3 substitutes a new paragraph 34 into that Schedule to specify the modifications to Schedule 29 to FA 2004 relating to entitlement to a pension lump sum exceeding 25% of uncrystallised rights. It provides that Schedule 29 to FA 2004 has effect as if, for paragraph 2 of that Schedule, there were substituted alternative provisions for the calculation of the permitted maximum. If the permitted maximum of a lump sum as determined by the modified provisions of paragraph 2 of Schedule 29 is lower than it would have been disregarding the modification, the modification is to be disregarded.

Paragraph (9) of regulation 3 inserts a new paragraph 34A into that Schedule which modifies section 637A of the Income Tax (Earnings and Pensions) Act 2003 (c.1) (“ITEPA”) as it applies in relation to a pension commencement lump sum where the permitted maximum of that lump sum is determined in accordance with paragraph 2 of Schedule 29 to FA 2004 as modified by paragraph 34 of Schedule 36.

Regulation 4 amends the Taxation of Pension Schemes (Transitional Provisions) Order 2006 (S.I. 2006/572). Paragraph (4) of regulation 4 substitutes a new article 23 in that Order which modifies paragraph 34 of Schedule 36 to FA 2004 as to the definition of “permitted maximum” in relation to the entitlement to lump sums exceeding 25% of uncrystallised rights. Paragraphs (5) to (7) of regulation 4 amend articles 23ZA, 23ZD and 23ZE of that Order to make provision for determining the amount of the additional lump sum entitlement under paragraph 2 of Schedule 29 to FA 2004 (as modified by paragraph 34 of Schedule 36 to FA 2004) in specified cases. Paragraph (8) of regulation 4 substitutes paragraph (a) in the substitute paragraph 31(3) of Schedule 36 to FA 2004 to provide a new pension condition for entitlement to lump sums exceeding 25% of uncrystallised rights. Paragraphs (9) and (10) of regulation 4 insert new paragraphs into each of articles 25CA and 25CC of that Order to ensure that, when determining the amount of an individual’s lump sum and death benefit allowance available immediately before the individual became entitled to the stand-alone lump sum, any enhancement to that allowance which would have been occasioned by the modifications to section 637R of ITEPA made by Schedule 9 to FA 2024 is disregarded.

Regulation 5 amends the Registered Pension Schemes (Authorised Payments) Regulations 2009 (S.I. 2009/1171) (“the 2009 Regulations”). It amends regulation 5 of the 2009 Regulations to provide that the payments described in regulations 17-19 of those Regulations are prescribed for the purposes of section 164(1)(f) of FA 2004 and shall be treated as a pension commencement lump sum for the purposes of Part 9 of ITEPA 2003. Paragraph (3) of regulation 5 inserts a new regulation 5ZA into the 2009 Regulations, which provides that payments described in new regulations 19A and 19B are prescribed for the purposes of section 164(1)(f) of FA 2004 and shall be treated for the purposes of Part 9 of ITEPA 2003 as pension paid to the recipient under a registered pension scheme in the tax year in which they are paid. Paragraph (4) of regulation 5 inserts new regulations 19A and 19B into the 2009 Regulations which provide that payments of the types described in those regulations (i.e., commencement and other lump sums paid in reliance on an inaccurate transitional tax-free amount certificate) are payments of a prescribed description and shall be treated as pension accruing in the tax year in which they are paid.

Regulation 6 makes transitional provision. If a member of registered pension scheme is paid a lump sum between 6 April 2024 and the day before the day on which these Regulations come into force which would, if the amendments made by these Regulations were disregarded, be a trivial commutation lump sum, that sum is to be treated as a trivial commutation lump sum for the purposes of Schedule 29 to FA 2004.