In its most recent pension schemes newsletter, HMRC has confirmed a change in the processes that can be used for dealing with DB lump sum death benefits and uncrystallised funds lump sum death benefits. This follows the abolition of the lifetime allowance tax charge in the Spring 2023 Budget.
On March 27, 2023, the LTA guidance newsletter stated that schemes would need to first contact the legal personal representative of the deceased member to find out how much available LTA the member had, telling them the type and amount of the benefit to be paid. This was to enable an assessment of whether the member's LTA had been used up.
However, following concerns raised at the first LTA working group meeting on April 4, 2023, HMRC has confirmed an about turn and will return to the system in place prior to April 6, 2023. Feedback to the working group had confirmed a strong preference for this reversal, although HMRC has stated that schemes can still elect to use the "new" method if they choose. Under the previous method, if the member's legal personal representative identified a chargeable amount after payment of a DB lump sum death benefit or uncrystallised funds lump sum death benefit, they reported this to HMRC. HMRC would then assess the tax due.
Further information from HMRC will come in LTA guidance newsletters until it develops a longer-term position for its full abolition from April 6, 2024.
Newsletter 149 also confirms that HMRC is in the process of updating the online annual allowance calculator.
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