PTM172000 - Lump sum allowance and lump sum and death benefit allowance: Lump sum and death benefit allowance

As of 6 April 2024 there is no longer lifetime allowance. If you are looking for information about protections, enhancement factors and the lifetime allowance charge please see these pages on The National Archives. If you are looking for information about the principles of lifetime allowance and benefit crystallisation events please see these pages of The National Archives.

The lump sum and death benefit allowance
Relevant benefit crystallisation events
Protected or enhanced lump sum and death benefit allowance
Calculating the remaining lump sum and death benefit allowance
Authorised lump sums that can only be paid if the member has some lump sum and death benefit allowance available
Pension commencement excess lump sum

The lump sum and death benefit allowance

Individuals are entitled to a lump sum and death benefit allowance of £1,073,100 unless they have a protected right to a higher lump sum allowance (explained below).

If an individual exceeds £1,073,100 when a relevant benefit crystallisation event occurs, the excess of the lump sum will be subject to income tax at the recipients marginal rate.

Once the first relevant benefit crystallisation occurs for an individual, their lump sum allowance availability will need to be determined for each subsequent event. However, only when the lump sum and death benefit allowance has been exceeded should it be reported to HMRC (see PTM161800).

Relevant benefit crystallisation events 

Chapter 15A Section 637S ITEPA 2003  

A relevant lump sum for the purpose of the lump sum and death benefit allowance is:

  • A pension commencement lump sum,
  • A serious-ill health lump sum,
  • An uncrystallised funds pension lump sum, and
  • A stand-alone lump sum

A relevant lump sum death benefit for the purposes of the lump sum and death benefit allowance means any authorised lump sum death benefit other than:

  • A charity lump sum death benefit,
  • A trivial commutation lump sum death benefit

When a relevant benefit crystallisation event occurs, the scheme administrator compares the amount of relevant lump sum or relevant lump sum death benefit being paid to the member’s lump sum and death benefit allowance that is still available. Any amount that exceeds the level of lump sum and death benefit allowance available is subject to an income tax charge.

An unauthorised payment is not a relevant benefit crystallisation event.

For more details on relevant benefit crystallisation events see PTM173000.

Protected or enhanced lump sum and death benefit allowance 

There are various allowance enhancements and protections, these can protect the members rights to a higher level than the usual lump sum and death benefit allowance of £1,073,100 when a relevant benefit crystallisation event occurs.

These are:

Calculating the remaining lump sum and death benefit allowance

When calculating the amount of lump sum allowance being used up at a relevant benefit crystallisation event, to calculate whether a member has enough lump sum allowance to cover the lump sum being paid (and whether or not any income tax is due) the scheme administrator may require details from the member of:

  • How much of the lump sum and death benefit allowance has already been used by previous relevant benefit crystallisation events,
  • What benefit crystallisation events may be arising at the same time from other registered pension schemes,
  • What lump sum and death benefit allowance the member is entitled to (if they have a protected allowance).

How a scheme administrator establishes these details is not prescribed by legislation. It may be that a scheme administrator is content in certain circumstances to rely on a simple member declaration. But in other circumstances the scheme administrator may feel a more detailed questionnaire is necessary, with supporting evidence. If a member fails to provide the information, then the scheme administrator will assume that the individual has no lump sum and death benefit allowance available.

HMRC will calculate the income tax liability with the lump sum and death benefit allowance has been exceeded.

Authorised lump sums that can only be paid if the member has some lump sum and death benefit allowance available 

A pension commencement lump sum can only be made if the member has some lump sum allowance and lump sum death benefit allowance available at the time of the payment.

For the full conditions relating to the above lump sum see PTM063000.  

Pension commencement excess lump sum 

Where an individual’s lump sum allowance has been fully utilised, subject to the scheme’s rules, any pension entitlement or uncrystallised funds crystallising beyond this point may be paid entirely as a lump sum.  

Any lump sum payment representing the excess rights is called a pension commencement excess lump sum – for more detail see PTM177000.