Legislation – The Pensions (Abolition of Lifetime Allowance Charge etc) (No. 2) Regulations 2024

These Regulations amend and modify primary and secondary 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).

A reference in this Explanatory Note to “FA” followed by a year is a reference to a Finance Act of that year.

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

Part 2 of these Regulations contains provisions amending or modifying primary legislation.

Regulation 2 amends section 98 of the Taxes Management Act 1970 (c. 9) so that a penalty attaches to a failure to give a transitional tax-free amount certificate as provided for in paragraph 127B of Schedule 9 to FA 2024.

(Regulation 17(5) of these Regulations inserts new paragraph 127B into Schedule 9 to FA 2024).

Regulation 3 amends various provisions in Chapter 15A of Part 9 of the Income Tax (Earnings and Pensions) Act 2003 (c. 1, “ITEPA 2003”) relating to “the permitted maximum” and drawdown pension fund lump sum death benefits under registered pension schemes.

Paragraph (7) of regulation 3 inserts a new section 637T into ITEPA 2003, which makes provision as to the time at which the benefit crystallisation events within section 637S are deemed to have occurred, where there is more than one such event. It also makes provision as to the calculation of the amount of lump sum and death benefit allowance available.

Regulation 4 amends Chapter 1 of Part 11 of ITEPA 2003, by substituting cross-references in section 683 of ITEPA 2003 relating to the tax treatment of pension commencement excess lump sums (section 637B) and trivial commutation lump sums and winding-up lump sums (section 637G), so that taxable pension income determined in accordance with those sections is treated as PAYE pension income for a tax year. It also excludes from PAYE pension income any taxable pension income determined in accordance with section 579B of ITEPA 2003 by virtue of the application of section 579A as applied by sections 637H to 637M.

Regulation 5 amends sections 239 and 255 of FA 2004 (c. 12) to make consequential amendments as to the scheme sanction charge and to give the Commissioners for His Majesty’s Revenue and Customs the power to make regulations as to the making of assessments in respect of the charge to tax under Part 9 of ITEPA 2003 as a result of amendments to provisions in that Act by these Regulations.

Regulation 6 makes minor consequential amendments to Schedule 29 to FA 2004.

Regulation 7 makes minor consequential amendment to Schedule 32 to FA 2004.

Regulation 8 amends Schedule 36 to FA 2004.

Paragraph (3) of regulation 8 modifies the effect of Chapter 15A of Part 9 of ITEPA 2003 in relation to individuals with relevant pre-commencement pension rights exceeding £1,500,000 where there is a notice of intention to rely on the primary protection rules in paragraph 7 of Schedule 36 to FA 2004. Where the primary protection rules apply, the individual’s lump sum allowance is £375,000 and the amount of the individual’s enhanced lump sum and death benefit allowance is that specified in section 637R of ITEPA 2003 (as determined by paragraph 20H of Schedule 36 to FA 20040. Paragraph 20H is inserted into Schedule 36 by regulation 8(16) of these Regulations.

Paragraph (5) of regulation 8 inserts a new paragraph 12A into Schedule 36 to FA 2004, which modifies the application of Part 2 of that Schedule and of Chapter 15A of Part 9 of ITEPA 2003, in relation to individuals with enhanced protection. It modifies the definition of “permitted maximum” in those provisions, as that term applies in relation to certain lump sums.

Paragraph (6) of regulation 8 amends paragraph 18 of Schedule 36 to FA 2004 to specify the amount of an individual’s lump sum allowance and lump sum and death benefit allowance in Chapter 15A of Part 9 of ITEPA 2003.

Paragraph (7) of regulation 8 amends paragraph 19 of Schedule 36 to FA 2004 to substitute different amounts (for the purposes of Chapter 15A of Part 9 of ITEPA 2003) that an individual is permitted to take before normal minimum pension age.

Paragraph (8) of regulation 8 makes consequential amendments to paragraph 20 of Schedule 36 to FA 2004.

Paragraph (9) of regulation 8 amends paragraph 20A of Schedule 36 to FA 2004 to make provision as to the amount of an individual’s lump sum and death benefit allowance in relation to pension credits from previously crystallised rights for the purposes of Chapter 15A of Part 9 of ITEPA 2003.

Paragraphs (10 to (15) of regulation 8 amend paragraphs 20B to 20G of Schedule 36 to FA 2004 to make consequential provision in relation to the lump sum allowances of individuals who are non-resident in the UK and in relation to overseas transfers.

Paragraph (16) of regulation 8 inserts a new paragraph 20H into Schedule 36 to FA 2004 to make provision for the calculation of an individual’s enhanced lump sum and death benefit allowance where one or more enhancement factors operate in relation to the individual.

Paragraph (17) of regulation 8 makes minor consequential amendment to paragraph 24 of Schedule 36 to FA 2004.

Paragraph (18) of regulation 8 substitutes paragraph 27 of Schedule 36 to FA 2004 to make provision as to the determination of the maximum amount of a pension commencement lump sum that may be paid to an individual to whom the enhanced protection provisions in paragraph 12 of that Schedule apply.

Paragraph (19) of regulation 8 inserts a new sub-paragraph (A1) into paragraph 28 of Schedule 36 to FA 2004 to make provision in relation to individuals to whom the enhanced protection provisions in paragraph 12 of that Schedule do not apply.

Regulations 9, 10, 11 and 12, respectively, make amendments to the Pensions Act 2004 (c. 35), the Pensions (Northern Ireland) Order 2005 ((S.I. 2005/255 (N.I. 1), the Pensions Act 2008 (c. 30) and the Pensions (No. 2) Act (Northern Ireland) 2008 (2008 c. 13 (N.I.)), to remove references to the lifetime allowance from provisions relating to the payment of terminal illness lump sums.

Regulation 13 amends Schedule 18 to FA 2011 (c. 11) to make provision as to the amount of an individual’s lump sum allowance and lump sum and death benefit allowance for the purposes of fixed protection.

Regulation 14 amends Schedule 22 to FA 2013 (c. 29) to make transitional provision as to the amount of an individual’s lump sum allowance and lump sum and death benefit allowance for the purposes of “fixed protection 2014”.

Regulation 15 amends Schedule 6 to FA 2014 (c. 26) to make transitional provision as to the amount of an individual’s lump sum allowance and lump sum and death benefit allowance for the purposes of “individual protection 2016”.

Regulation 16 amends Schedule 4 to FA 2016 (c. 24) to make transitional provision as to the amount of an individual’s lump sum allowance and lump sum and death benefit allowance for the purposes of “fixed protection 2016”.

Regulation 17 amends Schedule 9 to FA 2024 (c. 3).

Regulation 17(2) amends paragraph 126 of Schedule 9 to provide conditions to be met where a lump sum death benefit is paid in respect of an individual before 6 April 2024, for the purposes of determining the availability of an individual’s lump sum and death benefit allowance. It is also amended to specify the relevant time for the purposes of determining the relevant benefit crystallisation event.

Regulation 17(3) amends paragraph 127 of Schedule 9 to make provision as to the availability of the standard lifetime allowance in the tax year 2023-24 and makes other, minor consequential amendments.

Regulation 17(4) amends paragraph 127A of Schedule 9 to make provision as to the previously-used amount of an individual’s adjusted lifetime allowance.

Regulation 17(5) inserts a new paragraph 127B into Schedule 9 to require the provision of information to scheme administrators, where a certification administrator has issued a tax-free amount certificate and there are one or more other certification administrators in relation to the individual to whom the certificate relates.

Regulation 17(6) amends paragraph 128 of Schedule 9 to make provision as to the amount of the member’s lump sum allowance that has been expended where either a) the certification conditions are met, or b) an non-qualifying person has been paid (before 6 April 2024) a defined benefits lump sum death benefit or an uncrystallised funds lump sum death benefit within a specified period.

Regulation 17 also makes other consequential amendments to Schedule 9.

Part 3 of these Regulations contains provisions amending and modifying subordinate legislation.

Regulation 18 makes minor consequential amendments to the Occupational Pension Schemes (Assignment, Forfeiture, Bankruptcy, etc.) Regulations (Northern Ireland) 1997 (S.R. 1997 No. 153).

Regulation 19 makes minor consequential amendments to the Pension Protection Fund (Compensation) Regulations 2005 (S.I. 2005/670).

Regulation 20 makes minor consequential amendments to the Pension Protection Fund (Compensation) Regulations (Northern Ireland) 2005 (S.R. 2005 No. 149).

Regulation 21 amends regulation 4 of the Registered Pension Schemes (Accounting and Assessment) Regulations 2005 (S.I. 2005/3454) to provide that an officer of His Majesty’s Revenue and Customs must issue an assessment to the person liable to the charge to tax in respect of a lump sum death benefit to which section 579A or 637N of ITEPA 2003 applies.

Regulation 22 makes minor consequential amendments to the Pension Schemes (Application of U.K. Provisions to Relevant Non-U.K. Schemes) Regulations 2006 (S.I. 2006/207).

Regulation 23 amends the Pension Schemes (Information Requirements – Qualifying Overseas Pension Schemes, Qualifying Recognised Overseas Pension Schemes and Corresponding Relief) Regulations 2006 (S.I. 2006/208). It amends paragraph (2) of regulation 3 to require the scheme manager to provide to HMRC information as to the amount of the member’s overseas transfer allowance that was available on the making of the transfer, when a payment is made or treated as made in respect of a relevant member. It also amends paragraph (2B) of regulation 3 to require provision of that information to HMRC in the circumstances set out in that paragraph.

Regulation 24 amends the Registered Pension Schemes (Provision of Information) Regulations 2006 (S.I. 2006/567). Paragraph (2) of regulation 24 amends regulation 3 of those Regulations and requires information about a member’s overseas transfer allowance to be provided by scheme administrators to HM Revenue and Customs. Paragraph (3) of regulation 24 amends regulation 8 of those Regulations to specify the information to be provided by scheme administrators to personal representatives. Paragraph (4) of regulation 24 amends regulation 11BA of those Regulations to require scheme administrators to provide information about a member’s available overseas transfer allowance in relation to recognised transfers. Paragraph (5) of regulation 24 inserts a new regulation 14ZC into those Regulations to require the scheme administrator of the transferring scheme to provide the scheme administrator of the recipient scheme with information about “the permitted maximum” amount in relation to specified lump sums, if those sums were paid to or in respect of a member to whom enhanced protection applies. Paragraph (6) of regulation 24 makes consequential amendments to regulations 14A and 15 of those Regulations.

Regulation 25 amends the Taxation of Pension Schemes (Transitional Provisions) Order 2006 (S.I. 2006/572). Paragraph (3) of regulation 25 amends article 7 of that Order to modify Chapter 15A of Part 9 of ITEPA 2003 by inserting a new section 637NA to provide that no liability to income tax arises on a life cover lump sum, and to make other consequential provision. Paragraph (7) of regulation 25 substitutes article 13 of that Order, which modifies paragraph 20C of Schedule 36 to FA 2004 regarding the value of a relevant overseas individual’s rights under a money purchase arrangement. Paragraph (8) of regulation 25 substitutes article 14 of that Order, which modifies paragraph 20D of Schedule 36 to FA 2004 regarding the value of a relevant overseas individual’s rights under other arrangements. Regulation 25 also makes other consequential amendments to that Order.

Regulation 26 amends the Pension Protection Fund (Tax) Regulations 2006 (S.I. 2006/575). Paragraph (6) of regulation 25 substitutes a new regulation 42B for regulations 42 and 42A of those Regulations, which modifies Chapter 15A of Part 9 of ITEPA 2003 by inserting new sections 637GA, 637GB and 637GC. For these purposes:

Inserted section 637GA provides that no liability to income tax arises on a pension protection fund commutation lump sum or a pension protection funds pension credit commutation lump sum, to the extent that such lump sums do not exceed the permitted maximum.

Inserted section 637GB makes similar provision in relation to pension protection fund terminal illness lump sums.

Inserted section 637GC provides that an individual to whom other pension protection fund lump sums are paid is treated as having taxable pension income for the tax year in which the payment is made (subject to a “tax free element” of 25% of the value of any uncrystallised rights extinguished by the lump sum).

Regulation 26 also modifies sections 637Q and 637S of ITEPA 2003 as those provisions have effect for the purposes of the Pension Protection Fund (Tax) Regulations 2006.

Regulation 27 amends the Financial Assistance Scheme (Tax) Regulations 2010 (S.I. 2010/1187). Paragraph (2) of regulation 27 inserts a definition of “the permitted maximum” and other defined terms which operate for the purposes of those Regulations. Paragraph (3) of regulation 27 substitutes regulation 4 of those Regulations, which modifies the application of Chapter 15A of Part 9 of ITEPA 2003 in relation to certain lump sums paid by the Financial Assistance Scheme. Paragraph (14) of regulation 27 substitutes regulation 12 of those Regulations to make provision as to the qualifying member’s allowances where a relevant benefit crystallisation event has occurred. Paragraph (16) of regulation 27 inserts a new regulation 13A into those Regulations to require provision of transitional tax-free amount certificates to the FAS scheme manager. Paragraph (23) of regulation 27 inserts new regulations 20 and 21 into those Regulations which make provision about transitional tax-free amount certificates and the provision of information by FAS scheme managers to qualifying members. Regulation 27 also makes further consequential provision to those Regulations.

Regulation 28 makes minor consequential amendments to the Pension Protection Fund (Pension Compensation Sharing and Attachment on Divorce etc) Regulations 2011 (S.I. 2011/731) and regulation 29 makes equivalent minor consequential amendments to the Pension Protection Fund (Pension Compensation Sharing and Attachment on Divorce etc) Regulations (Northern Ireland) 2011 (S.R. 2011 No. 113).

Regulation 30 amends regulation 2 of the Registered Pension Schemes (Notice of Joint Liability for the Annual Allowance Charge) Regulations 2011 (S.I. 2011/1793) as to the particulars to be given in the notice to scheme administrators.

Regulation 31 makes minor consequential amendments to regulation 3 of the Pension (Non-Taxable Payments Following Death) (Real Time Information) Regulations 2021 (S.I. 2021/506).

A Tax Information and Impact Note covering this instrument will be published on the Gov.UK website at https://www.gov.uk/government/collections/tax-information-and-impact-notes-tiins.