Lifetime Allowance frozen until April 2026

In the March 2021 Spring Budget the Chancellor, Rishi Sunak, confirmed that the Lifetime Allowance (LTA) will be frozen at £1,073,100 until April 2026.

The LTA was planned to increase by the Consumer Price Index (CPI) each year as it has done since 2018/2019. The annual increases now won’t take place until at least April 2026. 

The change has little immediate impact as due to low inflation the LTA was only expected to increase by around £5,800 in 2021/22.

A much bigger issue will be the removal of future increases. If the LTA had continued to be uplifted with inflation it would be around £1.22m by April 2026. It will now be around £150,000 less than this. This means pension savers would miss out on up to £37,500 of extra tax-free cash. 

The good news is that all the other benefits or pensions remain. Personal contributions can benefit from income tax relief at the client’s highest marginal rates, employers can benefit from corporation tax relief, the funds grow free of tax on income and capital gains, 25% tax free cash is still available and most pension funds sit outside of the estate for inheritance tax purposes. 

There are no changes to the annual allowances or tapered annual allowance income limits. 

Download our summary of The Budget 2021, and the full list of tax rates for the 2021/22 tax year.

The information in this article is correct as of 24/03/2021 and is based on our current understanding of taxation legislation and regulations.