HMRC releases fixed protection guide

HM Revenue & Customs has announced to advisers and pension savers they now have until the end of the tax year – 5 April 2014 – to apply for its new version of fixed protection for pension lifetime allowance.

The current level is £1.5m, but will be reduced to £1.25m from 6 April 2014.

HMRC says if a pension saver has savings of more than £1.25m, or plans to do so in the expectation that the lifetime allowance would not reduce from the 2013-14 level, the new form, ‘Fixed Protection 2014’ is available.

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FP2014 is applied from 6 April and broadly follows the current version, which was introduced after lifetime allowance was reduced from £1.8m to £1.5m in 2013 to 2013.

The form is to be used to mitigate the lifetime allowance charge and will allow investors to crystallise benefits worth up to £1.5m without paying the lifetime allowance charge, although the ability to accrue future benefits is limited.

What you should know

The application for FP2014 has been available since 12 August and may be submitted electronically or in paper by 5 April 2014. It should be noted HMRC will not send out any FP2014 certificated before November 2013.

If the investor has FP2014, the lifetime allowance will be fixed at £1.5m rather than the standard lifetime allowance. Importantly, if the standard lifetime allowance rises to be more than £1.5m, the client will no longer need to reply on FP2014 and instead the lifetime allowance will be the new higher standard lifetime allowance.

Who should apply

Anyone who does not have fixed protection, primary protection or enhanced protection can apply for FP2014. Savers do not need to have already built pension savings of more than £1.25m to apply.

Further protection

The government is still working on proposals for a new protection regime, called ‘individual protection’ which will give savers a lifetime allowance equal to the value of their pension rights on 5 April 2014 – up to a maximum of £1.5m.