By Jenna Brown, Christopher Copper-Ind

Britain’s finance minister, Rishi Sunak, has frozen the lifetime allowance (LTA) for pension contributions at just over £1m for the remainder of this Parliament, and will be keeping IHT at the current level for a further five years.

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The Chancellor said the LTA would remain at its current level of £1,073,100 for 2020/21 rather than increasing in line with inflation. It had been expected to rise by £5,800 in 2021/22, in line with 0.5% Consumer Prices Index.

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The IHT threshold will also be held at current levels until April 2026.

Incredibly, the current nil rate band for inheritance tax (of £325,000) came into force from 6 April 2009 and hasn’t been increased since.”

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In a widely predicted move – it was leaked last week – the freeze is estimated to net the Treasury an additional £250m in tax.

If the lifetime allowance rose alongside inflation it would increase by a further £88,900 by the end of the current parliament.

It is thought medium to high earners in the public sector – who are building up significant defined benefit (DB) pensions – would be badly affected by the change.

The LTA is £1,073,100 for defined contribution pensions. The LTA in DB schemes is an annual pension amount of one twentieth of the ‘cash’ limit, or £53,655 a year.

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