PTM174200 - Lump sum allowance and lump sum death benefit allowance: Transitional rules for the tax year 2024-25: Lump sum and death benefit availability
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.
Relevant benefit crystallisation events
Benefit crystallisation events pre-April 2024 without a transitional tax-free amount certificate
Benefit crystallisation events pre-April 2024 with a transitional tax-free amount certificate
Used-up lifetime allowance
Determining the members LTA previously-used amount
From 6 April 2024, individuals will be entitled to a new lump sum and death benefit allowance. An individual’s lump sum and death benefit allowance is £1,073,100 unless they have a protected right to a higher lump sum and death benefit allowance.
If an individual exceeds their available lump sum and death benefit allowance when a relevant benefit crystallisation event occurs, the excess of the lump sum or lump sum death benefit paid will be subject to income tax at the recipient’s marginal rate.
Once the first relevant benefit crystallisation event has occurred for an individual, the individual will need to determine their lump sum and death benefit allowance availability for each subsequent event.
There will be some individual’s that have had benefit crystallisation events (BCEs) prior to 6 April 2024. These individual’s will need to rely on transitional rules to calculate their lump sum and death benefit allowance availability at their first relevant benefit crystallisation event. These transitional rules apply from the 2024-25 tax year.
Relevant benefit crystallisation events
Chapter 15A Section 637S ITEPA 2003
For the purposes of the lump sum and death benefit allowance, a relevant benefit crystallisation event occurs when an individual becomes entitled to a relevant lump sum or a person is paid a relevant lump sum death benefit in respect of the individual.
A relevant lump sum for the purposes of the lump sum and death benefit allowance is:
- A pension commencement lump sum (PTM63200)
- A serious ill-heath lump sum (PTM063400)
- An uncrystallised funds pension lump sum (PTM63300)
- A stand-alone lump sum (PTM63300)
A relevant lump sum death benefit for the purposes of the lump sum and death benefit allowance means any lump sum death benefit other than:
- A charity lump sum death benefit (PTM073900)
- A trivial commutation lump sum death benefit (PTM073700)
A relevant lump sum death benefit does not include a lump sum death benefit to the extent that it is paid in respect of rights that were crystallised before 6 April 2024. You can read more about relevant benefit crystallisation events at PTM173000.
Where an individual has more than one relevant benefit crystallisation event on the same day, they are to be treated as occurring:
- Immediately before the individual’s death,
- Immediately after any PCLS to which the individual becomes entitled immediately before death, and
- In an order which may be decided by the individual’s personal representative
Benefit crystallisation events pre-April 2024 without a transitional tax-free amount certificate
Paragraph 126 Schedule 9 Finance Act 2024
If an individual has had one (or more) BCEs occur prior to 6 April 2024, then these events must be reflected when calculating the individual’s remaining lump sum death benefit allowance via the standard transitional calculation.
Where the individual doesn’t hold a valid transitional tax-free amount certificate, this is achieved by deducting the appropriate percentage of the individual’s lifetime allowance previously-used amount from their lump sum and death benefit allowance. For most individuals the LSDBA is is £1,073,100, unless they hold a valid protection.
The appropriate percentage is 100% if:
- the individual became entitled to a serious ill-health lump sum before 6 April 2024 and was under the age of 75 at the time of the payment, othe individual
- died before 6 April 2024 and was under the age of 75 at the time of their death, and a person was paid a lump sum death benefit in respect of the individual before 6 April 2024.
Otherwise, the appropriate percentage is 25%.
Note that, where the 100% appropriate percentage applies, the individual’s lifetime allowance previously used amount should not be apportioned.
If the individual’s lifetime allowance previously-used amount after the 25% deduction, is greater than or equal to the lump sum and death benefit allowance, then the individual’s lump sum and death benefit allowance after applying the transitional calculation will be nil. This means the individual (or their beneficiaries) will be subject to income tax at their marginal rate on any subsequent lump sums or lump sum death benefits.
Example 1
Isha dies, aged 70, on 9 May 2024 and doesn’t hold a transitional tax-free amount certificate.
Isha’s lifetime allowance previously-used amount at 5 April 2024 is £200,000.
The benefits Isha has already received were uncrystallised funds pension lump sums within BCE6.
Isha did not become entitled to a serious ill-health lump sum before 6 April 2024, or die before that date, so the appropriate percentage is 25%.
25% of £200,000 is deducted from Isha’s lump sum and death benefit allowance.
25% of £200,000 = £50,000
£1,073,1000 - £50,000 = £1,023,100
Isha’s lump sum and death benefit allowance at 9 May 2024 is therefore £1,023,100.
Example 2
Justin died on 18 May 2024, aged 52.
On 5 February 2023, prior to his death, he took a serious ill-health lump sum (SIHLS) of £800,000 from one of his pension schemes.
He also had another pension fund but didn’t take a SIHLS from that scheme before he passed away, so leaves £300,000 uncrystallised funds to his beneficiaries.
Justin’s lifetime allowance previously-used amount at 5 April 2024 is £800,000 (800,000 x1,073,100 / 1,073,100).
As Justin became entitled to a serious ill-health lump sum before 6 April 2024, the appropriate percentage is 100%.
100% of £800,000 is deducted from Justin’s lump sum and death benefit allowance.
100% of £800,000 = £800,000
£1,073,100 - £800,000 = £273,100
Justin’s remaining lump sum and death benefit allowance at 6 April 2024 is therefore £273,100.
£300,000 - £273,100 = £26,900
The uncrystallised funds exceed Justin’s lump sum and death benefit allowance by £26,900. Justin’s beneficiaries will therefore pay income tax at marginal rate on the excess of £26,900 if it is paid as a lump sum death benefit.
Example 3
Jocelyn died on 12 January 2024, aged 49. A lump sum death benefit of £100,000 was paid to her beneficiary in March 2024.
Jocelyn’s lifetime allowance previously-used amount at 5 April 2024 is £100,000 (100,000 x 1,073,100 / 1,073,100).
As a lump sum death benefit was paid in respect of Jocelyn before 6 April 2024, and she was under the age of 75 when she died, the appropriate percentage is 100%.
100% of £100,000 is deducted from Jocelyn’s lump sum and death benefit allowance.
100% of £100,000 = £100,000
£1,073,100 - £100,000 = £973,100
Jocelyn’s remaining lump sum and death benefit allowance at 6 April 2024 is therefore £973,100.
Benefit crystallisation events pre-April 2024 with a transitional tax-free amount certificate
Paragraphs 126 and 127 Schedule 9 Finance Act 2024
If an individual has taken less of their benefits before 6 April 2024 as tax-free lump sums than assumed under the standard transitional calculation, and the individual has complete evidence of this, they can request a transitional tax- free amount certificate from their scheme administrator.
If an individual holds a transitional tax-free amount certificate that has been issued by a registered pension scheme, this will state the amount of the individual’s lump sum and death benefit transitional tax-free amount.
The lump sum and death benefit transitional tax-free amount is the total of the following amounts (if any) that the individual was entitled to prior to 6 April 2024:
- Each relevant lump sum
- Each relevant lump sum death benefit
- Each tax-free lump sum taken before 6 April 2006
so far as no income tax charge has arisen in respect of these lump sums.
In addition, if the member had a pension in payment before 6 April 2006, 25% of the amount of the deemed BCE under paragraph 20 Schedule 36 FA 2004 that occurred immediately before the first BCE is included in the lump sum and death benefit transitional tax-free amount.
The lump sum and death benefit transitional tax-free amount is deducted from the lump sum and death benefit allowance, to calculate the individual’s available lump sum and death benefit allowance.
If the deduction results in a negative figure, then the available lump sum and death benefit allowance is nil.
You can read more about transitional tax-free amount certificates at PTM174300.
Example
Avril dies, aged 72, on 30 April 2024 leaving £200,000 in a flexi-access drawdown and £500,000 uncrystallised funds.
Avril’s personal representatives provide records of her previous designations and payments to the scheme administrator, which show that the only relevant lump sum Avril took was a PCLS of £100,000.
The information the scheme administrator holds is accurate and complete.
The administrator provides the personal representative with a transitional tax-free amount certificate showing the lump sum and death benefit transitional tax-free amount is £100,000.
This must be deducted from Avril’s lump sum and death benefit allowance:
£1,073,100 - £100,000 = £973,100
Avril has £973,100 lump sum and death benefit allowance remaining.
Used-up lifetime allowance
Paragraph 126 Schedule 9 Finance Act 2024
If, before 6 April 2024, an individual has already used an amount that is equal to or greater than their previous lifetime allowance then the individual’s lump sum and death benefit allowance after applying the transitional calculation will be nil. This means the individual (or their beneficiaries) will be subject to income tax at their marginal rate on any subsequent lump sums or lump sum death benefits.
Individuals who have used an amount that is equal or greater than their previous lifetime allowance can still make an application for a transitional tax-free certificate if they meet the requirements outlined at PTM174300.
Determining the members LTA previously-used amount
For administrative ease, schemes may determine a member’s LTA previously-used amount by converting their LTA percentage used as at 5 April 2024 into a monetary amount.