Lifetime allowance UK is the maximum amount of pension benefits you can build up during your life without having to pay extra tax. Before 6 April 2023, pension savings above £1,073,100 were subject to this charge, known as the lifetime allowance charge, at the point they were claimed. One of the triggers that gave rise to the assessment of the lifetime allowance UK was a pension transfer to an overseas pension scheme. For large pension transfers to New Zealand the UK scheme would deduct the charge and pay it to the HMRC from members funds at the same time as the pension transfer to New Zealand.
In the Spring Budget 2023, the Government announced it would:
- Remove the lifetime allowance charge from 6 April 2023
- Abolish the lifetime allowance from 6 April 2024
What this means?
- Until the Government abolishes it from 6 April 2024, pension providers still need to assess the value of pension benefits against the £1,073,100 allowance
- For events on or after 6 April 2023, the 25% and 55% lifetime allowance charges will not apply
- From 6 April 2023, lump sums and lump sum death benefits in excess of the lifetime allowance will be taxed as income at the highest rate at which the recipient pays tax
Impact for pension transfers to New Zealand of lifetime allowance UK changes
If you have a large UK pension, or an international pension plan built up in Jersey, Guernsey or the Isle of Man, you can now transfer these pensions to New Zealand without having to pay the lifetime allowance charge. Your pension transfer will still be assessed against the lifetime allowance and found in breach of it, however, because the charge has been removed there will be no tax. This is a considerable win as the previous charge on a transfer to New Zealand was 25%.
There have been no changes to the Overseas Transfer Charge and the removal of the lifetime allowance UK charge in the UK should not be confused with this.
As always tax on a pension transfer out of the UK is complex and there are many facets that need to be considered. We recommend that people seek appropriate professional advice before transferring their UK pensions to New Zealand.