Tue 15 Apr 2014
HMRC have published updated guidance notes on individual protection (“IP2014”) from the pension lifetime charge. IP2014 was announced in Budget 2013 alongside the reduction in the lifetime allowance from £1.5m to £1.25m. Most individuals with more than £1.25m of pension saving on 5 April 2014 are entitled to apply for IP2014.
Applying for IP2014 gives the individual a lifetime allowance of their pension saving at 5 April 2014, subject to a maximum of £1.5m. Legislation for IP2014 is in FB 2014. Once it receives Royal Assent in mid-July HMRC will accept IP2014 applications from August. IP2014 must be made applied for by 5 April 2017.
The benefit of IP2014 is more of the individual’s pension saving is protected from the current 55% tax charge on payments out by way of lump sum or on death, and the 25% tax surcharge on regular pension payments out of the funds. Unlike Fixed Protection 2014, it is not necessary to stop making contributions or accruing further pension benefits (see below).
The lifetime allowance does not impact the rate of tax on funds remaining at death. Drawing all this together, the post-April 2015 maximum benefit of IP2014 (individuals with current pension saving of at least £1.5m) will only be £28k (45% of ¼ of £250k).
Fixed protection 2014 was not available to anyone who had already elected for primary, enhanced or fixed protection. Fixed protection 2014 is lost if the individual:
NB these changes concern the lifetime allowance (LTA). The removal of additional charges on sums that breach the LTA looks set to remain.
Note that those individuals who already hold enhanced protection or fixed protection can apply for Individual Protection 2014 but cannot apply for individual protection if they already hold primary protection.
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