Guidance

Newsletter 155 — January 2024

Updated 7 February 2024

Lifetime allowance (LTA) abolition — legislative changes

We’d like to thank those who have contacted us since the publication of Finance Bill 2023-24. Consideration of clause 14 and Schedule 9 of Finance Bill 2023-24 took place in Parliament on 16 January 2024 and this legislation was then successfully passed through public bill committee stage.

We now want to take the opportunity to give an update on the legislation and our plans for further communications, as well as provide answers to some frequently asked questions.

We have noted the concerns raised around the operation of the pension commencement excess lump sum (PCELS) (paragraph 26, Schedule 9, Finance Bill 2023-24). The PCELS was introduced to allow individuals to commute (more of) their pension as a lump sum on commencement, where that individual has exhausted their lump sum allowance. In particular, the policy aim was to ensure that individuals who are entitled under scheme rules to take 25% (or more) of their pension benefits as a lump sum, where total benefits crystallising were in excess of the LTA, could continue to do so.

However, stakeholders have highlighted that linking eligibility for a PCELS to the lump sum and death benefit allowance has created unintended consequences for members with multiple pension schemes. We are considering how to address this including whether it may require legislative change.

You may be aware that there was an update to the Lifetime allowance guidance newsletter — December 2023 on 15 January 2024. This amended a minor error in the description of the PCELS so that it correctly reflected the legislation published as part of Finance Bill 2023-24.

We can also confirm that we believe legislation will be necessary to address the following areas:

• scheme-specific lump sum protection (paragraph 87, Schedule 9, Finance Bill 2023-24)
• event 24 (paragraph 106, Schedule 9, Finance Bill 2023-24)
• calculating tax due on lump sum death benefits (paragraph 106, Schedule 9, Finance Bill 2023-24)

Scheme-specific lump sum protection (paragraph 87, Schedule 9, Finance Bill 2023-24)

Changes are required to address an error in this calculation at the definition of ‘D’.

Event 24 (paragraph 106, Schedule 9, Finance Bill 2023-24)

Changes are required to ensure that:

• this event only needs to be completed where the lump sum or lump sum death benefit paid exceeds an individual’s available allowances
• where the payment is of a lump sum death benefit, the scheme will not need to confirm that any tax due has been paid

Calculating tax due on lump sum death benefits (paragraph 106, Schedule 9, Finance Bill 2023-24)

Changes are required to clarify that schemes are not obliged to report any tax due on lump sum death benefits to HMRC.

Currently, it is the responsibility of the deceased member’s legal personal representative to provide information on payments made to HMRC and we will calculate the tax due from beneficiaries. This process will continue to apply.

This will include changes to PAYE regulations.

Paragraphs 133 and 134 of the Finance Bill 2023-24

We have had some concerns expressed over the inclusion of the powers provided at paragraphs 133 and 134 of Finance Bill 2023-24 and the uncertainty they appear to introduce. These powers were taken to ensure that changes to the legislation could be made where the current provisions do not achieve the correct policy outcome.

The intention is not to introduce more widespread legislative changes without consultation. It is for this reason that powers have a sunset date of 5 April 2026 and that, should any changes increase a person’s liability to tax, these will need to be debated in Parliament.

Abolition of the LTA — frequently asked questions

We’ve had several requests for clarification on the following areas. As detailed below, we will be providing further detail in newsletters or workshops. In the meantime, the following information provides answers to some of the more frequently asked questions.

Question 1 — is available lump sum allowance required for small lump sums as well as the winding-up lump sum and trivial commutation lump sum?

No. Available lump sum allowance will only be required for winding-up lump sums and trivial commutation lump sums. This is the effect achieved by the legislation published as part of Finance Bill 2023-24. We understand that the accompanying policy paper is not clear on this point and are looking at amending this.

Question 2 — where there is a requirement to have available lump sum allowance for a winding-up lump sum, or trivial commutation lump sum to be paid, does the available allowance need to cover the entirety of the payment?

No. The individual only needs to have some available allowance.

Question 3 — can an uncrystallised funds pension lump sum (UFPLS) now be paid to members aged over 75?

Yes. Because there is no test of pension savings against the new allowances at age 75, members will be able to be paid an UFPLS after age 75, provided the payment meets all other eligibility criteria.

Question 4 — will lump sum death benefits paid from dependents’, nominees’, or successors’ drawdown be tested against the beneficiaries’ lump sum and death benefit allowance?

No.

Question 5 — lump sum death benefits are excluded for the purposes of the tapered annual allowance, does this also apply to lump sums?

No. The exclusion from the tapered annual allowance applies only to lump sum death benefits, and not to other taxable lump sums. This is because it is not the choice of the beneficiary to receive a lump sum death benefit.

Question 6 — are all lump sum death benefits paid from funds, which crystallised before 6 April 2024, free from income tax, or just the first payment of death benefits?

Any lump sums paid from funds which crystallised before 6 April 2024 have been tested against the LTA, and therefore will be reflected by the transitional arrangements. Lump sum death benefits in this scenario will not be taxed again if paid after the commencement of this legislation.

Question 7 — if an individual has used 100% of their LTA, will the member have any remaining allowances and can they apply for a transitional tax-free amount certificate?

Under the standard transitional arrangements, the member will not have any allowances left. This is because individuals who have used 100% of their LTA before 6 April 2024 cannot have expected to receive any further tax-free benefits, either as pension income or as lump sums.

If the member can provide complete evidence to demonstrate that they have used less than 100% of their LTA on tax-free amounts, the pension scheme which they apply to (see question 8) can review and determine if that member meets the required criteria for a transitional tax-free certificate. The scheme can then use the evidenced, transitional tax-free amounts to calculate the member’s remaining lump sum allowance and lump sum death benefit allowance.

Question 8 — when should a transitional tax-free certificate be applied for, and which benefits paid before 6 April 2024 should it reflect?

We expect that the vast majority of individuals will go through the standard transitional calculation and not apply for a transitional tax-free certificate. A transitional tax-free certificate should only be applied for where individuals can provide complete evidence that they have received, as of 6 April 2024, a lower amount as tax-free lump sums than that provided for by the standard transitional calculation. Those who do apply for a transitional tax-free certificate must do so before their first relevant benefit crystallisation event (BCE) and they cannot apply more than once.

The application must be made by the member, and guidance will confirm that we expect applications to be made to the scheme from which the first lump sum is being paid post after 6 April 2024. The member must provide complete evidence to prove their exact tax-free amount received as lump sums, to receive the certificate. The certificate should reflect the actual amount of allowances used.

Question 9 — when a relevant benefit crystallisation event occurs and schemes are required to issue members with a statement, should this be a monetary amount or percentage and what should the figure be rounded to?

The amounts which appears on an individual’s statement should be a monetary figure and not a percentage. The amount of their lump sum allowance and lump sum and death benefit allowance used should be to the nearest pound, rounded down.

Question 10 — can pension scheme administrators still use the P60 to report the amount of lump sum allowance and lump sum and death benefit allowance used to members?

As with the LTA, there is no prescribed format for giving this statement to members, so providers can continue to use the P60 where appropriate. Any statements relating to the tax year 2024 to 2025 onwards should show an individual’s lump sum allowance, and lump sum and death benefit allowance used. However, statements issued in 2024 relating to the 2023 to 2024 tax year should still refer to the LTA.

Abolition of the LTA — communications

In Lifetime allowance guidance newsletter — December 2023, we asked pension schemes for their views on which aspects of the legislation they would most like to be covered in future communications. Thank you for your responses to that request.  

Most responses have highlighted the need for further communications on reporting requirements and transitional arrangements as a priority. In particular, we have received several questions on:

• the process for reporting lump sum death benefits
• lump sum and lump sum and death benefit statements
• the one-off transitional reporting exercise required by paragraph 130 of Finance Bill 2023-24
• transitional tax-free amount certificates

We are in the process of organising further LTA working groups on both reporting and transitional arrangements and will be issuing invites as soon as possible. These working groups are currently planned for:

• Thursday 8 February 2024 (transitional arrangements)
• Wednesday 14 February 2024 (reporting requirements)

If you attended working groups in the Autumn you will already be on our invite list. If you did not attend in Autumn and would like to join either meeting, email [email protected] and put ‘LTA Working Group’ in the subject heading.

We will be collating questions in advance to focus the discussions, so you should continue to send any queries on the reporting requirements or transitional arrangements to the same inbox. We will provide further updates on LTA working groups covering other areas, but if there are particular topics you wish to discuss then continue to send these requests to [email protected].

In addition to further LTA working groups, we will aim to issue communications every 2 weeks through either LTA guidance newsletters or the monthly pension schemes newsletter. Following requests already received, these will include information and examples on:

• the operation of enhancement factors and closure of applications
• pre-commencement pension rights
• enhanced protection and serious ill-health lump sums
• scheme-specific lump sum protection and stand-alone lump sums
• the taxation of lump sum death benefits paid to non-qualifying persons
• reporting requirements in relation to the overseas transfer allowance
• transitional arrangements for the overseas transfer allowance

If there are further areas where worked examples would provide clarity on the legislation, you should send requests to [email protected].

Relief at source

Notification of residency status report for 2024 to 2025

On 22 January 2024, we started issuing January 2024 notification of residency status reports.

You should have received an email and a reminder when your file was available for you to download. As explained in the email, you have 6 days (144 hours starting from when we made the report available to you) to download your file.

Email us at: [email protected] and put ‘Relief at source — January 2024 residency report’ in the subject line if you:

• do not receive your report and you submitted your annual return of information for the previous tax year
• have questions about the data within your report

If you do not receive a notification of residency status report

If you do not receive a residency report in January 2024, you can check your members’ residency status for relief at source. You can check the residency tax status for single or multiple members or default to the UK basic rate for your members.

You should also use this service to check a member’s residency status if they:

• do not appear on your notification of residency status report
• are unmatched

Use the rest of UK residency status if:

• you cannot check a member’s status before you apply for relief at source for them
• they do not appear on either the residency report or the look up service

You must not apply a tax rate based on the member’s address.

Once you have used a residency status to claim relief at source for a member, you must use this for the whole of the tax year, even if their residency status changes.

Changes to Scottish Income Tax rates from 6 April 2024

On 19 December 2023, the Scottish Government published its budget setting out the Scottish Income Tax rates for the 2024 to 2025 tax year. The Scottish Government announced they would be introducing a new Advanced rate, at a rate of 45p, and adding an additional 1p to the Top rate.

For 2024 to 2025 the Scottish rates will be as follows:

• Starter rate — 19%
• Basic rate — 20%
• Intermediate rate — 21%
• Higher rate — 42%
• Advanced rate — 45%
• Top rate — 48%

You can find more information about Scottish Income Tax at Scottish Income Tax 2024 to 2025: factsheet and further guidance will be published ahead of the 2024 to 2025 tax year.

As there are no changes to the basic rate for Scotland for 2024 to 2025, you should continue to operate relief at source as you do now.

Extension to some of the temporary changes to relief at source processes

In Pension schemes newsletter 136, we explained that we extended easements for getting wet signatures on the APSS105, APSS106 and APSS590 declarations until 31 March 2024.

We can confirm that we’re extending the easements until 31 March 2025, while these are reviewed to find a permanent solution.

This means that until 31 March 2025, HMRC will accept scanned relief at source forms:

• emailed by the authorised signatory ― in this circumstance we will accept the form without a signature
• signed and emailed by someone else providing we also receive a separate email directly from the authorised signatory authorising them to submit the form

For the APSS105 and APSS106 declarations, email: [email protected].

For the APSS590 declarations, email: [email protected].

Pension flexibility statistics

HMRC can now give more information on the number of tax repayment claim forms processed for pension flexibility payments.

From 1 October 2023 to 31 December 2023, we processed:

• P55 — 7,307 forms
• P53Z — 3,738 forms
• P50Z — 1,014 forms

Total value repaid: £38,784,733

The tax repayment figures for the period 1 January 2024 to 31 March 2024 will be published in Pensions schemes newsletter ― April 2024.

Retained firefighters

Retained firefighters are a category of part-time firefighters that were previously not allowed to join the firefighters pension schemes.

The House of Lords decided in Matthews v Kent and Medway Towns Fire Authority [2006] that:

• retained firefighters had been unlawfully discriminated against in relation to the terms and conditions compared to regular firefighters
• retained firefighters had to be given equal treatment with regards to pension rights

As a result, retained firefighters can convert their membership and join the Fire Authorities Schemes from 6 April 2000 to 5 April 2016. The individuals National Insurance record will be amended to show they were contracted out in the relevant Fire Authorities Scheme and appropriate adjustments will be paid to the employer and the customer.

HMRC have previously contacted all Fire Authorities in England, Wales and Northern Ireland asking for information in relation to National Insurance refunds for retrospective entry into the pension scheme.

Firefighter Authority schemes need to apply to register and obtain a verified Contracted out Election Certificate to allow the membership into their scheme. Without the correct registration and certificates, customer records will not be amended by HMRC.

Fire Authorities will need to:

• supply the start and end date of every customer’s retrospective period of membership — without the correct information, customer records will not be amended by HMRC
• provide the employers bank account details and not their members. HMRC will write to members direct requesting their bank account details when processing their refund — without the employer’s bank details, customers records will not be amended by HMRC

HMRC will not action cases if all information is not supplied.

This issue has been a lengthy process and an end date has been set of 5 April 2024.

All Fire Authority schemes have received information bespoke to them and must reply accordingly. Complete information must be supplied by 5th April 2024, any information supplied after this date will not be progressed or chased.

Any queries should be sent to [email protected] with the subject heading ‘Retained Firefighter — Urgent’.

Government Gateway — enrolment recovery

If you have not logged in to your Business Tax Account in the last 3 years, your credentials may have been deleted. This will mean that you cannot access the Pension Schemes Online service or the Managing pension schemes service. However, we still hold any scheme administrator or practitioner registration details in these cases.

If someone within your organisation still has online access under your scheme administrator or practitioner ID, they will be able to give you access through their Business Tax Account and you won’t need to complete enrolment recovery.

If your credentials have been deleted and you were previously enrolled as a scheme administrator on the Managing pension schemes service, we have introduced new functionality so that you can now recover your enrolment.

If your scheme administrator ID begins with an ‘A0’, you will need to recover your Pension Schemes Online enrolment first.

If your credentials have been deleted and you were previously enrolled as a practitioner on the Managing pension schemes service, we have introduced new functionality so that you can now recover your enrolment.

If your practitioner ID begins with a ‘0’, you will need to recover your Pension Schemes Online enrolment first.

If you are registered as both a scheme administrator and practitioner, you should recover each enrolment separately, but this can be done under the same Business Tax Account.

Managing pension schemes service

System downtime

As a result of some routine updates, we will need to take the service offline for a few days.

This means that you will not be able to access the Managing pension schemes service for any activity from 5pm on Friday 16 February 2024 to 9am on Thursday 22 February 2024.

The filing and payment deadline for the Accounting for Tax (AFT) return for the quarter ended 31 December 2023, is 14 February 2024. For any AFT returns filed after this date, you may be liable to penalties, and interest will be charged on any tax paid late.

Pension scheme return

In Managing pension schemes service newsletter — September 2023, we told you that from April 2024 we were introducing a new function that allows you to submit a pension scheme return on the Managing pension schemes service. This would mean when you receive a notice to file a pension scheme return for the tax year ending 5 April 2024, you’ll need to submit the return on Managing pension schemes service.

We have now decided to defer the implementation of this new function. This means if you receive a notice to file a pension scheme return for the 2023 to 2024 tax year, you will need to continue to submit the return on the Pension Schemes Online service. For those who currently use third party software to submit the return, you will still be able to do so.

This deferral will give you more time to collate and prepare the information required to file your pension scheme return on Managing pension schemes service, once the function is available.

When the new process is introduced, you’ll have to provide more information than in your previous pension scheme return. We will publish additional guidance on GOV.UK to help you prepare for these changes soon. 

To give you enough time to complete your pension scheme return on Managing pension schemes service, once the function is available, you’ll need to make sure you’ve migrated your pension scheme.

Two steps to migrating your schemes ― enrol and migrate

Take action to migrate your pension schemes.

As a scheme administrator, if you haven’t already, you must first enrol on the Managing Pension Schemes service. You should use the Government Gateway username and password for your existing ‘A0’ administrator ID. If you have multiple scheme administrator IDs, you must enrol on the Managing pension schemes service using the username and password for your ‘Master’ ID.

You can find more information on ‘Master’ and ‘Ancillary’ IDs on the migrate your pension schemes page.

To migrate your pension schemes, you’ll need to complete the following steps. 

1. Sign in to the Managing Pension Schemes service.

2. Select ‘Add a pension scheme from the Pension Schemes Online service’.

3. Select each scheme you need to migrate and provide the information requested.

Join our user research panel

We are looking for pension scheme administrators and pension scheme practitioners to help us continually improve the Managing pension schemes service. By joining our Managing pension schemes user panel, you will have the chance to actively participate in user research activities and provide invaluable feedback. As a panel member, you will only be contacted regarding matters directly related to the Managing pension schemes service.

You can find out more and sign up on GOV.UK.