HMRC has provided further details relating to the reduction in the lifetime allowance in its latest Pension Schemes Newsletter including confirmation that the new protections can’t be applied for before 6th April.
The standard lifetime allowance, currently £1.25 million, will reduce to £1 million from tax year 2016/17. From tax year 2018/19 onwards it will increase each year in line with CPI (taken as the annual CPI increase to the previous September).
As previously publicised, the HMRC online system for applying for Individual Protection (IP2016) or Fixed Protection 2016 (FP2016) won’t be available until July this year. There will be a period between 6th April 2016 and the date in July when the online service goes live when pension scheme members may wish to take benefits and rely on either IP2016 or FP2016 but can’t apply for these protections online.
To help these scheme members protect their pension savings, HMRC is introducing an interim process for them to make a temporary application for IP2016 or FP2016 so that they can initially rely on these protections when they take benefits from their scheme(s). Once the new online system goes live in July 2016 these members will need to make a full online application so that their pension savings can continue to be protected against the lifetime allowance tax charge.
The interim process requires scheme members to contact HMRC in writing with details of their intention to rely on either IP2016 or FP2016. The HMRC Pension Schemes Newsletter 74 (link below) gives full details of the information that will need to be supplied. IP2016 can’t be applied for by those holding primary protection or individual protection 2014 (IP2014). FP2016 can’t be applied for by those holding primary protection, enhanced protection or fixed protection 2012 or 2014.
For both IP2016 and FP2016 HMRC will check its records against the details the scheme member provides to ensure that the declarations are correct. If no other valid protection is held (that precludes the member from holding FP2016 or IP2016) HMRC will write to the scheme member with a temporary reference number to provide to their pension scheme administrator. The temporary reference number will only be valid until 31st July 2016. Scheme members who take benefits and rely on this interim process to protect their pension savings temporarily must make a full online application to ensure their pension savings continue to be protected from the lifetime allowance tax charge. When they make a full online application they will receive a permanent reference number to provide to pension scheme administrators. Scheme administrators will not be able to use the temporary reference number in any reporting to HMRC and must wait until a permanent reference number is provided by the scheme member.
If the scheme member fails to make a full online application, their application for IP2016 or FP2016 made under the interim process will not be valid and they will be liable to a lifetime allowance tax charge on their pension savings above the lifetime allowance.
In the latest Pension Schemes Newsletter 75 (link below) HMRC has confirmed that scheme members can’t apply for FP2016 or IP2016 before 6th April 2016 because as part of the application members must either:
So because scheme members cannot provide these values or make these declarations before 6th April 2016, HMRC is unable to process any interim applications for protection that are received before that date. Any requests received before 6th April will not be retained and the scheme member will need to resubmit their application for protection on or after 6th April 2016.
Interim applications received on or after 6th April 2016 will be dealt with in date order and provided the details that have been sent are correct and no other valid protections are held, HMRC will write to scheme members with a temporary reference number as described above.
HMRC has also confirmed that where an individual dies before 6th April 2016, but a relevant lump sum death benefit is paid on or after 6th April 2016, the death benefit will be tested against the standard lifetime allowance at the time of the individual’s death. This would apply to a lump sum death benefit paid from uncrystallised funds on death before age 75.
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