At a glance
- The Lifetime Allowance (LTA) has been abolished. There’s no overall cap on the size of your pension pot. What matters now is how much tax-free cash you can take. GOV.UK
- Two new allowances apply: the Lump Sum Allowance (LSA) of £268,275 for most people, and the Lump Sum and Death Benefit Allowance (LSDBA) of £1,073,100.
- A separate Overseas Transfer Allowance (generally £1,073,100) applies to certain transfers to overseas schemes. Royal London for advisers
- Past benefits are converted into your new allowances under transitional rules; in some cases a transitional tax-free amount certificate is worth obtaining. GOV.UK
- The annual allowance still limits tax relieved contributions (normally £60,000 in 2026, with tapering for high earners). The MPAA is £10,000 once you’ve flexibly accessed DC income. GOV.UK
- From 6 April 2027, most unused pension funds and pension death benefits will be within scope of Inheritance Tax (IHT); death-in-service lump sums are excluded. GOV.UK.
- Most relevant for: people with larger pension pots, Lifetime Allowance protection, business owners making significant pension contributions, and those planning to pass pension wealth to family members.
Pension Lifetime Allowance changes
The pension Lifetime Allowance (LTA) as it used to be known no longer applies in the UK. The rules changed from 6 April 2024, when the government abolished the lifetime allowance entirely. That means there’s no overall limit on how much you can save in a pension pot without triggering a specific lifetime charge. However, the rules still include limits on the amount of tax-free cash you can take.
Here’s what you need to know now.
What changed
The LTA charge was removed on 6 April 2023 and the LTA itself was abolished from 6 April 2024. Instead of testing your total pension against a single cap, HMRC now limits how much tax-free lump sum can be paid over your lifetime and on death. Anything above your remaining allowance is taxed as income at your marginal rate.
The new allowances that matter
Lump Sum Allowance (LSA) – the total tax free cash you can take in life, usually £268,275. Each time you take tax free cash, your remaining LSA falls. If you go over it, the excess is taxed as income. GOV.UK.
Lump Sum and Death Benefit Allowance (LSDBA) — the cap for tax free lump sums paid from your pensions, including certain death benefits before 75 and some serious ill-health payments. Standard figure £1,073,100. Amounts you took tax free in life reduce what is left. GOV.UK.
Overseas Transfer Allowance (OTA) – a lifetime cap on how much you can move from UK registered pensions to a Qualifying Recognised Overseas Pension Scheme (QROPS) without an extra UK tax charge. For most people the OTA is £1,073,100, and it can be higher if you hold valid LTA style protections.
What uses each allowance?
| Event / payment | Uses Lump Sum Allowance (LSA)? | Uses Lump Sum and Death Benefit Allowance (LSDBA)? | What to expect |
|---|---|---|---|
|
Pension commencement lump sum (PCLS) — your “tax free cash” when you crystallise benefits. |
Yes |
No |
Counts fully against your LSA. Any amount above your remaining LSA is taxable as income; DB schemes may pay this as a specific “excess” lump sum. |
|
Uncrystallised funds pension lump sum (UFPLS) |
Yes (the tax free element) |
Yes (tested) |
UFPLS is tested against both LSA and LSDBA. The 25% part is only tax-free to the extent allowances remain; the rest is taxed as income. |
|
Serious ill-health lump sum (member under 75) |
No |
Yes |
Can be paid tax free within LSDBA if within limits; otherwise taxed as income. |
|
Lump sum death benefits (member died under 75) |
No |
Yes |
Can be tax free within LSDBA if paid within the two-year period; any excess is taxed as the recipient’s income. |
|
Lump sum death benefits (member died 75 or over) |
No |
No (because not tax-free) |
Paid as the beneficiary’s taxable income; the two-year rule still affects treatment of certain benefits. |
Two-year rule (death benefits) – for deaths before age 75, most lump sum death benefits must be paid within a two year window to be tax free within LSDBA; late payments are taxed as the recipient’s income.
Transitional rules if you took benefits before 6 April 2024
HMRC translates your historic usage into the new system. Where the default conversion would overstate how much tax free cash you used in the past, you can ask a scheme to issue a transitional tax free amount certificate so your remaining LSA/LSDBA better reflects reality. This is especially relevant for some DB cases and for people who previously took less than 25% tax free.
Quick examples: how past usage maps to remaining LSA
| Lifetime allowance used by 5 April 2024 | Standard LSA starting point | Indicative LSA treated as used* | LSA left |
|---|---|---|---|
|
0% |
£268,275 |
£0 |
£268,275 |
|
25% |
£268,275 |
£67,069 |
£201,206 |
|
50% |
£268,275 |
£134,138 |
£134,137 |
|
75% |
£268,275 |
£201,206 |
£67,069 |
*Illustrative “rule of thumb” conversion only. Actual figures depend on your record and whether a transitional certificate is used. GOV.UK.
What about people with old LTA protections?
Fixed, Individual, Primary and Enhanced protections can still increase your personal LSA and/or LSDBA under the new framework. The detail depends on the protection type and values at the relevant dates. Keep your evidence safe and make sure providers apply it.
Annual allowance still matters
While the lifetime (LTA) limit is gone, the annual allowance, the amount you can contribute to pensions each tax year with tax relief, still applies. For the 2025/26 tax year this is typically £60,000, though it reduces for very high earners under the tapered annual allowance rules.
What this means in practice
You can save as much as you like into your pension without a life long tax charge on the total pot. But the amount you can contribute and receive tax relief on is capped to the annual allowance.
This means there are still limits on contributions, separate to the new lump sum allowances.
When you take lump sums
- Only up to your lump sum allowance can be taken tax free.
- Larger tax free benefits can be available on death under the lump sum and death benefit allowance.
- Anything beyond these allowances is taxed at your income tax rate, not subject to an LTA charge. uss.co.uk.
Access age reminder
The normal minimum pension age when pension pots can be accessed is age 55 and this rises to 57 from 6 April 2028 (some people have a protected earlier age). Plan cash flow and retirement dates accordingly. GOV.UK.
Looking ahead: IHT treatment from 6 April 2027
From 6 April 2027, most unused pension funds and death benefits will be counted within an estate for IHT. Death in service benefits from registered schemes will be excluded. HMRC has set out how liability, reporting and payment will work; we’ll keep this page updated as guidance evolves.
Frequently asked questions
No. The LTA has gone. The focus is now on the tax-free part you can take under the LSA and LSDBA.
For most people the lifetime total is £268,275. Each payment reduces your remaining LSA.
Not sure how this applies to you?
Yes. UFPLS is tested against both LSA and LSDBA; the tax-free element is limited by what you have left.
Once you have used all of your available tax free cash, you can still take money from your pension. Any further withdrawals will usually be taxed as income at your marginal rate of Income Tax.
If you have a defined benefit pension, different rules may apply and some schemes may allow additional lump sums that are taxable. If you have a defined contribution pension, withdrawals above your tax free cash allowance are normally taxed as income.
Pension and tax rules can be complex, particularly if you have pension protections or benefits built up under previous rules, so it is sensible to check your position before taking large withdrawals.
Where death occurs before 75, lump sum death benefits can be tax-free within LSDBA if paid within two years; otherwise they’re taxed as the beneficiary’s income. After 75, they are taxable as income
Yes — from 6 April 2027 most unused funds and death benefits will fall within the estate for IHT, with death in service benefits excluded.
How Abode Financial Planning in Cirencester can help
This topic isn’t just theory for us. We routinely help clients work out their remaining Lump Sum Allowance and Lump Sum and Death Benefit Allowance, decide when and how to take tax free cash, and avoid unwanted charges such as the Money Purchase Annual Allowance (MPAA) or overseas transfer taxes.
As a Chartered, independent financial planning firm in Cirencester, we’ll build a plan that fits your pensions, your tax position and your timeline.
What we’ll do for you:
- Map your allowances: calculate your personal LSA/LSDBA , check any protections, and confirm whether a transitional tax free amount certificate would help.
- Plan your first steps: weigh up UFPLS, drawdown or annuity, compare DB and DC options, and model the effect on tax now and later.
- Sequence income and savings: coordinate pension withdrawals with ISAs and cash to keep your net income smooth and within target tax bands.
- Guard against surprises: monitor tapered annual allowance and MPAA triggers, and keep paperwork aligned across your schemes.
- Prepare for change: shape death benefit choices and keep your plan updated as the 2027 IHT rules are finalised.
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