By the time Jeremy Hunt took to the dispatch box we had already been warmed up for the prospects of an increase in the Annual and Lifetime Allowances for pension benefits.
And his headline statements did not disappoint!
- Annual Allowance for tax-relieved pension contributions increased from £40,000 to £60,000!
- Lifetime Allowance abolished!
In a move dressed up as encouraging Doctors to remain working in the creaking NHS, the benefits of these actions will be felt far wider than just the medical profession.
As always there may be a ‘devil in the detail’ so what more does the Treasury’s detailed Spring Budget release tell us?
- The Annual Allowance increase is effective from April 2023, with the Lifetime Allowance charges being stopped from April 2023 and abolished later.
- Good news for higher earners. The Tapered Annual Allowance minimum has been increased from £4,000 to £10,000 with the ‘adjusted income’ threshold for tapering to start rising to £260,000.
If you have previously been earning £312,000 with a fully tapered Annual Allowance of £4,000, you may now be able to contribute a further £22,000 recovering up to £11,700 in Additional Rate Income Tax relief.
For higher earners, you will still need to reach £360,000 of adjusted income before you are fully tapered, and even then you may add an additional £6,000 of pension contributions and reclaim a further £2,700 in tax relief.
- The Money Purchase Annual Allowance has also been increased from £4,000 to £10,000 from April 2023, encouraging those who have already accessed flexible pension benefits to return to work and join in with employers workplace pension schemes or restart personal pension contributions.
- No change to the Carry Forward rules for unused Allowances from previous tax years.
All good news, but don’t go tearing up your Individual and Fixed Protection certificates just yet!
The one fly in the ointment?
The freezing of tax-free pension commencement lump sums at 25% of the current Lifetime Allowance at £268,275 for all those without some form of Lifetime Allowance Protection.
Dependent on more detail it appears those with the foresight to previously obtain such protections may still be awarded with higher tax-free cash entitlements up to their existing individual Lifetime Allowances.
However, with no mention of changes to the Inheritance Tax treatment for Pension benefits, the abolition of the Lifetime Allowance should further increase the attractiveness of using Pensions as a tax-efficient inter-generational wealth transfer vehicle.
For the first time in a number of years this budget has delivered pension reforms that may lead to significant changes to your current and future financial planning.
Whether you are looking to take advantage of the increased allowances for making additional pension contributions, or save punitive Lifetime Allowance tax charges on significant changes in your future financial planning, this budget has something to offer you.
To make sure you take advantage of all the benefits these changes have to offer I recommend you seek Independent Financial Advice.
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