Abolishing the lifetime allowance

An update from HMRC

The lifetime allowance was abolished on 6 April 2024. However as you may be aware, there have been some challenges faced by platforms, advisers and clients in navigating the new rules due to delays receiving guidance from HMRC.



On 4 April 2024, HMRC released a newsletter in which it advises some clients to delay taking benefits, or transferring their pension until it can remedy incorrect legislation.

HMRC advise that certain groups of people should delay action until regulations are passed through Parliament to correct the legislation. Those affected by HMRC’s advice relate to any cash which involves:

  • scheme specific tax-free cash protection
  • a transfer with enhanced protection
  • enhanced protection and primary protection cases with protected lump sum rights of more than £375,000
  • the payment of a lump sum death benefit from funds which crystallised before 6 April 2024
  • any transfer from drawdown to a QROPS
  • any transfer to a QROPS which involves pre-April 2006 benefits

In respect of the above cases, HMRC state that ‘schemes should advise members to request a delay to the payment/defer their request to transfer’. Therefore, if you believe that you fall into one of the scenarios above, please contact your financial adviser. If you do not have a financial adviser, please contact us directly at 0370 414 7000. Please select option 8 when calling.

We strongly recommend that you speak with a regulated financial adviser to understand more about how these regulatory changes may impact you and your pension.

Lump sum allowance (LSA)

The LSA is set at £268,275 for the 2024/2025 tax year, unless you have transitional protection (you can read more about this below). The LSA limits the amount of tax-free lump sums that you may receive from all registered pension schemes during your lifetime.

These lump sum payments will also count towards your Lump Sum and Death Benefit Allowance (LSDBA) and include lump sums such as:

Any lump sums in excess of the LSA are subject to income tax at your marginal income tax rate.




Lump sum death benefit allowance (LSDBA)

The LSDBA limits the amount that can be taken as a tax-free lump sum payable from all of your registered pension schemes, over your lifetime or following death before age 75. The LSDBA is set at £1,073,100 for the 2024/2025 tax year, unless you hold transitional protection.

The lump sums that are tested against the LSDBA include:

  • Pension Commencement Lump Sum (PCLS)
  • Non-taxable element of Uncrystallised Funds Pension Lump Sum (UFPLS)
  • Serious Ill-Health Lump Sum, if paid from uncrystallised funds and to an individual under age 75
  • Lump sum death benefits, where a member dies under age 75 and the claim is settled within 2 years and funds derived from uncrystallised funds or funds crystallised post 5 April 2024. This doesn’t include any lump sum death benefits paid as a Charity Lump Sum Death Benefit or Trivial Commutation Lump Sum Death Benefit.

Any lump sum taken during your lifetime which is within the LSDBA is tax-free.

If you pass away before age 75, lump sum death benefits would be tax free if paid within 2 years of the notification of death up to your remaining LSDBA. If you pass away after age 75, all lump sums would be liable to income tax at your beneficiaries’ marginal income tax rate.

Overseas transfer allowance (OTA)

The OTA is a limit on transfers to a qualifying recognised overseas pension scheme (ROPS). The OTA for the 2024/2025 tax year is £1,073,100. If you exceed this allowance, you will be subject to an overseas transfer charge of 25%.

Some transfers to a ROPS may already be subject to a 25% overseas transfer charge. The current overseas transfer exclusion requirements are:

  • Member and receiving scheme in the same country
  • Receiving scheme in European Economic Area (EEA) state or Gibraltar & member resident in United Kingdom (UK) or EEA
  • Receiving scheme is an occupational scheme
  • Receiving scheme set up by an international organisation
  • Receiving scheme is an overseas public service scheme

Where an overseas transfer does not meet the exclusion requirements above, the entire transfer value will be subject to an overseas transfer charge of 25% and will not reduce the OTA.


Transitional agreements

A Transitional Tax-Free Amount certificate (TTFAC) is provided by a registered pension scheme, following receipt of complete evidence, to show an individual’s lump sum transitional tax-free amount and lump sum and death benefit transitional tax-free amount.

An individual, or a personal representative, can apply for a TTFAC from a registered pension scheme where the individual is a member or, if the individual is deceased, of which the individual was a member immediately before death.

In order to obtain a TTFAC, the applicant will need to provide complete evidence of any lump sums or lump sum and death benefits in respect of any pension the client has been a member of. The scheme administrator will use this evidence to determine the client’s transitional lump sum tax-free amount and transitional lump sum and death benefit tax-free amount and issue a certificate, or decline the application.

To obtain a TTFAC, please contact us.