Draft Finance Bill 2024 published for consultation

HM Treasury and HMRC have published draft legislation for inclusion in the Finance Bill 2024, including two pensions-related measures.

These are:

• The abolition of the lifetime allowance (LTA) following removal of the LTA charge from April 6, 2023.
• Amendments to enable modernisation of the relief at source system from April 6, 2025.

The measures provide for a new "lump sum allowance" of £268,275 in relation to tax-free pension commencement lump sums and a new "lump sum and death benefit allowance" of £1,073,100 (the current level of the LTA) in relation to authorised lump sums and authorised lump sum death benefits. These allowances will apply across all registered pension schemes of which an individual is a member. Payments exceeding the allowances will be subject to income tax at the recipient's marginal rate. Details of these changes are set out in the Pension schemes newsletter no. 152, along with administrative issues relating to the digitisation of relief at source.

In the policy paper accompanying the draft Finance Bill are changes to the taxation of inherited pension pots where a member dies before age 75. Since 2015, it has been possible to inherit a pension pot in such circumstances free of IHT and income tax. The policy paper states that “Individuals will still be able to receive the benefits which are currently tested against the LTA, but the values will no longer be excluded from marginal rate income tax…with effect from April 6, 2024.” This has been described as a “sea change” in tax treatment of inherited benefits. More detail on the related proposed legislation is expected. It will be important to check whether the newly drafted Finance Bill maintains the tax protections currently enjoyed by death benefits under an excepted group life policy, as such policies are widely used by employers.

The consultation on the draft legislation runs until September 12, 2023.