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Trustees – prepare now in advance of Lifetime Allowance removal

Karla Bradstock, our Technical & Communications Manager, advises trustees to start preparing for the abolition of the Lifetime Allowance on 6 April 2024.

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Author: Karla Bradstock, Technical & Communications Manager
01 March 2024

Abolition of the Lifetime Allowance – latest update

Last year’s autumn statement confirmed that the Lifetime Allowance (LTA) will be removed on 6 April 2024. The complex legislation to achieve this in very tight timescales is detailed in the Finance Act, which received Royal Assent on 22 February 2024.

There are some areas where further guidance and clarity are required from HMRC, but preparation for the removal of the LTA can start ahead of this.

Key points

The new allowances

Two new lump sum allowances will be introduced from 6 April 2024 that relate to the amount of tax-free cash an individual can receive. The allowances apply across all pension arrangements that a member belongs to:

  • The ‘Lump sum allowance’ (LSA) – a fixed cumulative limit of £268,275 (25% of the current LTA) applies to the tax-free cash sums that can be paid to a person on retirement. The lump sum allowance will be tested and used up by payment of a pensions commencement lump sum (PCLS) and on the tax-free element of an uncrystallised funds pension lump sum (UFPLS). These payments will be known as Relevant Benefit Crystallisation Events (RBCE).
  • The ‘Lump sum and death benefit allowance’ (LSDBA) – a fixed cumulative limit of £1,073,100 on the total tax-free elements of lump sums that can be paid to or in respect of a member. This allowance will be used up by payment of a PCLS, the tax-free element of an UFPLS as well as the tax-free elements of serious ill health lump sums (SIHLS) and lump sum death benefits.

The industry had previously voiced concerns at the proposed changes which suggested that tax-free elements of trivial commutation, winding-up, and small lump sums would also use up this allowance. However, it has now been confirmed that these lump sum payments will not eat into the new allowances.

Where an individual has previously used 100% of their lifetime allowance, they will have exhausted their new allowances.

For both new allowances, those with valid LTA protection and/or lump sum protection will be able to retain an entitlement to the higher protected amounts. The window to apply for either Fixed Protection 16 or Individual Protection 16 will remain open until 5 April 2025.

Only lump sums will use up these new allowances, not pensions.

Transitional calculations

Where, prior to 6 April 2024, an individual has already used some of their LTA and is now due to receive a tax-free amount through a RBCE occurring after 6 April 2024, a default transitional calculation will apply to determine how much of the new allowances a member has remaining.

The default calculation will take 25% of the LTA percentage previously used and deduct this amount from the new lump sum allowances.

For the LSDBA, the position is slightly different as 100% of the previous BCE will be used where the BCE related to a SIHLS or for any lump sum death benefits paid in respect of the member.

The default calculation can be replaced if members provide the scheme with a ‘transitional tax-free amount certificate’. The Act states that individuals can apply to any registered scheme of which they are a member to certify their personal ‘transitional tax-free amount’ and schemes will need to provide this within three months of the request. HMRC have since provided guidance that members should apply before receiving their first lump sum after 6 April 2024. The member will need to provide the scheme with ‘complete evidence’ of all lump sums previously taken to enable this calculation to be performed.


A new ‘overseas transfer allowance’ will be introduced for transfers to qualifying recognised overseas pension schemes. This allowance will be equal to the level of an individual’s LSDBA of £1,073,100.

Where the total value of an individual’s transfers from registered pension schemes to a qualifying recognised overseas pension schemes exceeds their available allowance, the excess will be subject to the overseas transfer charge.


The Act introduces a new event for the Event Report (Event 24). As drafted, the legislation requires administrators to report every single RBCE to HMRC on the annual Event Report although HMRC has clarified that legislation will be amended to match the policy intent to only require events to be reported when the new allowances are exceeded.

The Act also introduces a requirement for administrators to provide a statement before the end of the tax year 2024-25 to the ‘relevant person’. A relevant person is one who has taken a benefit crystallisation event before 6 April 2024 and does not have a pension in payment before the end of the tax year 2024-25. The purpose of this is to remind members of one-off payments that might have been made many years ago, leaving remaining funds available, which may now eat into the new allowances.

Other changes

  • HMRC suggested in July that pensions paid from uncrystallised DC funds on death before age 75 would be subject to income tax in the new regime. The Autumn Statement confirmed this will not be the case so these benefits will remain free of income tax.
  • The draft proposals in July also suggested that members may be able to take unlimited taxable PCLS. The Government has confirmed this was not the intention and the Finance Act now details the maximum PCLS available (broadly being the lower of 25% of the value of benefits crystallising and the member’s remaining LSA and LSDBA).
  • The Finance Act introduces a new authorised payment – the “pension commencement excess lump sum” which allows members to commute additional pension as lump sum where the new lump sum allowance or lump sum death benefit allowance has been exhausted. However, regulations together with guidance and worked examples that clarify how this will operate in practice are still awaited.


What’s next?

Whilst further clarity is needed from HMRC on some of the changes, schemes should start work now to ensure their materials capture all the relevant information needed to perform tax-free amount checks against members’ allowances for both pre and post 6 April 2024 events. If their scheme is administered by a third-party provider, trustees must ensure they are doing this.

Members should also be made aware they can apply for a ‘transitional tax-free amount certificate’ where they have used some of their LTA in the pre-6 April 2024 regime. Whether this certificate is useful or not for members depends on the benefits taken and the LTA in force at that time.

Similarly, it is important to ensure that the allowances used by members are recorded and can be reported on.

Finally, trustees should consider the impact of the removal of the lifetime allowance on the scheme Trust Deed and Rules. The Act does not include any legislative overrides.

In short – it will be action stations for schemes to get in a good position ready for 6 April.

This article was first published in Pensions Expert on 1 March 2024.

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