Taxation of pension benefits reform

Last updated: 23/01/2025

At Spring Budget 2023, the previous government announced that it would abolish the pension lifetime allowance (LTA). This was part of the previous government’s efforts to encourage inactive individuals to return to work, in particular those aged 50 and above.
Finance (No.2) Act 2023 removed the LTA charge and made other consequential changes. Finance Act 2024 removes the LTA itself and introduces two new allowances to limit the amounts of tax-free lump sums that can be taken in life and in death. It includes transitional measures, such as enhanced allowances for those who hold LTA protections or enhancement factors.
At Autumn Budget 2024, the government announced that it aims to bring the value of most unused pensions savings and death benefits within the scope of an individual’s estate for inheritance tax purposes. There is currently a consultation open on the processes required to implement these changes for UK-registered pension schemes.
Timing: The legislative changes to abolish the LTA and introduce replacement allowances have effect from 6 April 2024. Finance Act 2024 includes powers that allow the government to change the legislation via statutory instrument until 5 April 2026. Three sets of regulations have been laid since 6 April 2024. Unused pensions and death benefits will be subject to inheritance tax from 6 April 2027. The consultation on Inheritance Tax and pensions closed on 22 January 2025.

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