Discharging a lifetime allowance charge
How to discharge your liability to a lifetime allowance charge, including new charges following the public service pensions remedy (McCloud).
As a pension scheme administrator, one of the charges you need to pay is the lifetime allowance charge. You and the member are jointly and severally liable to pay this charge.
In certain circumstances, you can apply to be discharged from all or part of your liability to the lifetime allowance charge by writing to HMRC with the following details:
- your scheme administrator ID
- the pension scheme tax reference for your scheme
- the member’s name and national insurance number
-
the amount in excess of the lifetime allowance that is being taken as a lump sum
- the amount in excess of the lifetime allowance that is being taken annually
- the reason that you are applying for the discharge
- the quarter in which the lifetime allowance charge arose
If you are liable for charges for more than one benefit crystallisation event, you must make a separate application for each event.
You can apply for the lifetime allowance charge to be discharged in full if both:
- you reasonably believed there was no liability to the charge in respect of the benefit crystallisation event
- it would not be reasonable for you to be liable for the charge in respect of the benefit crystallisation event
You can apply for a partial discharge if both:
- you reasonably believed that the amount of the lifetime allowance charge in respect of the benefit crystallisation event was less than the actual amount
- it would not be reasonable for you to be liable for the excess amount in respect of the lifetime allowance charge
If your application to be discharged is successful, the member will be solely liable for the lifetime allowance charge.
If your application to be discharged is unsuccessful, you will continue to be joint and severally liable to the charge with the member, although you can appeal this decision. Details of how you can do this will be on the letter we send you.
When you need to apply by
If you want to apply to be discharged from your liability to the lifetime allowance charge, you must do this within the following times:
- where there has been no discovery assessment and the scheme administrator is a company, no later than 6 years after the end of the accounting period which the application relates to
- where there has been no discovery assessment and the scheme administrator is not a company, no later than 5 years after 31 January of the following year that the application is for
- where there has been an assessment, within 2 years of the date on the assessment
Discharge your liability following the public service pensions remedy
As a result of the public service pensions remedy, the amount of a member’s benefit crystallisation event may have increased which may affect their lifetime allowance.
If the amount of the member’s benefit crystallisation event under another pension scheme has increased, the member should send you the updated benefit crystallisation event statements if they have crystallised benefits in your scheme. You will then need to recalculate your member liability to the lifetime allowance charge based on this updated information. This should be done using the lifetime allowance at the time of the original benefit crystallisation event in your scheme.
If you are a private sector scheme, you may be able to apply for a discharge from the new or additional lifetime allowance charge.
If you are a public service pension scheme, you cannot apply to discharge any new or additional lifetime allowance charges as a result of the remedy.
Example of an increased lifetime allowance change
Member A is a member of a public service and a private sector pension scheme.
Member A has a benefit crystallisation event in their public service scheme. This benefit crystallisation event uses up 85% of their lifetime allowance.
At a later date, member A has a benefit crystallisation event in their private sector pension scheme. This uses up 20% of their lifetime allowance, meaning there is an lifetime allowance charge on the 5% in excess of member A’s lifetime allowance.
As a result of the public service pensions remedy, member A’s benefit crystallisation event with the public service scheme increases, with the amount of lifetime allowance used increasing to 90%.
As the benefit crystallisation event with the private sector scheme occurred at a later date, the increase means that the lifetime allowance charge that was due as a result of the benefit crystallisation event with the private sector increases. 10% is now in excess of member A’s lifetime allowance.
The member and private sector scheme administrator become joint and severally liable to the increased amount.
After a private sector scheme discharges their liability following the remedy
If a private sector pension scheme administrator successfully discharges their liability to a lifetime allowance charge following the public service pensions remedy, HMRC will send the member information about the new or additional charge. The member will be able to either:
- pay the tax charge themselves
- give HMRC details for the public service pension scheme administrator that is jointly liable for the new charge — they will need to let HMRC know if they want the public service pension scheme to pay the tax
HMRC will then contact the public service pension scheme administrator to collect the additional tax due. This does not need to be reported on the Accounting for Tax return. Details on how to pay this will be sent on the notice of assessment.
When a scheme administrator pays the lifetime allowance charge, they will need to adjust the member’s benefits in line with this.