The lifetime allowance was abolished from 6 April 2024. In its place, the lump sum allowance caps the total tax free cash a person can take from all their pensions at £268,275 for 2026 to 2027, unless they hold a protection that gives a higher figure. Tax free cash above the available allowance is taxed as income at the person’s marginal rate, and people who took benefits before April 2024 start with a reduced allowance.

What replaced the lifetime allowance?

GOV.UK explains that the lifetime allowance charge was removed from 6 April 2023 and the allowance itself was abolished from 6 April 2024, removing the overall limit on tax relieved pension savings. Since then there have been two limits on tax free lump sums, set out in Chapter 15A of Part 9 of the Income Tax (Earnings and Pensions) Act 2003 (section 637P onwards):

  • the lump sum allowance (LSA), the most a person can take as tax free cash during their lifetime from all their schemes; and
  • the lump sum and death benefit allowance (LSDBA), a wider limit covering tax free cash plus serious ill health lump sums and certain lump sum death benefits paid before age 75.

HMRC’s rates page shows the standard LSA at £268,275 and the standard LSDBA at £1,073,100 for 2024 to 2025, 2025 to 2026 and 2026 to 2027. These are the same figures as 25% and 100% of the final standard lifetime allowance of £1,073,100. Death benefits and inheritance tax are covered in pensions and inheritance tax.

What uses up the lump sum allowance?

Section 637Q defines the “relevant lump sums” that use up the LSA. Each payment is a “relevant benefit crystallisation event”:

  • a pension commencement lump sum (PCLS), the usual tax free cash taken when benefits start;
  • the 25% tax free part of an uncrystallised funds pension lump sum (UFPLS); and
  • a stand alone lump sum.

Anything that uses the LSA also uses the LSDBA. Trivial commutation and winding up lump sums can only be paid if the person has some LSA left, but GOV.UK confirms they do not reduce it. Pension income itself, such as drawdown withdrawals or annuity payments, does not use the LSA; it is taxed as income in the normal way.

The usual rule remains that up to 25% of a pot can be taken tax free, but the LSA caps the total across all pots. Someone with large or several pensions can hit the cap before taking 25% of everything.

What happens if a lump sum exceeds the allowance?

A PCLS is limited to the available LSA. GOV.UK and PTM171000 explain that, if the scheme rules allow, any further lump sum can be paid as a pension commencement excess lump sum, which is taxable as income. For an UFPLS, any tax free element above the remaining allowance is taxed as income. In each case the provider deducts the tax before payment, at the person’s marginal rate.

A PCLS can only be paid at all if the member has some LSA and LSDBA available (PTM171000). Once the allowance is fully used, no more tax free cash is possible from any scheme.

Who keeps track across different schemes?

The individual. GOV.UK says you must add up how much of your allowances you have used across all your schemes. Each scheme will ask how much has already been used, whether other lump sums are being paid at the same time and whether a protection applies. PTM171000 says a scheme can rely on a simple declaration or ask for evidence, and that if the member does not provide the information the scheme will assume no allowance is available. Where several relevant events happen on the same day, PTM174100 lets the individual choose the order.

What if benefits were taken before 6 April 2024?

Anyone who crystallised benefits under the old system starts with a reduced allowance. Under the standard transitional calculation in paragraph 125 of Schedule 9 to the Finance Act 2024, 25% of the lifetime allowance used before 6 April 2024 is deducted from the LSA (PTM174100). If that deduction equals or exceeds the allowance, the available LSA is nil.

The standard calculation assumes 25% was taken as tax free cash. Where less was actually taken, for example because a defined benefit scheme paid a smaller lump sum, the person can apply for a transitional tax free amount certificate. GOV.UK sets out the conditions: the application must be made before the first relevant benefit crystallisation event after 6 April 2024, it must include evidence of tax free amounts taken from all schemes, it need only be made to one scheme, and the scheme has three months to consider it. When the next relevant lump sum is paid, the certificate figure is used in place of the standard 25% deduction.

How do lifetime allowance protections affect it?

Valid protections carry over into higher allowances (PTM176100). The figures for the fixed and individual protections are:

Protection Lump sum allowance
Fixed protection 2012 £450,000
Fixed protection 2014 £375,000
Fixed protection 2016 £312,500
Individual protection 2014 lower of £375,000 and 25% of the protected amount
Individual protection 2016 lower of £312,500 and 25% of the protected amount

Primary and enhanced protection can also give a higher allowance, which HMRC explains at PTM176200 and PTM176300. To rely on a protection the member gives each scheme the protection reference number; GOV.UK explains how to find it online. PTM176100 says fixed and enhanced protection certificates issued before 15 March 2023 can no longer be lost by further pension saving, so further saving no longer puts those protections at risk.

A worked illustration

Illustration only. Helen has no protection. Before April 2024 she used £200,000 of lifetime allowance on a small pension, taking a quarter of it as tax free cash. Her starting LSA is £268,275 minus £50,000 (25% of £200,000) = £218,275.

In 2026 she takes a PCLS of £150,000 from a £600,000 personal pension, leaving £68,275 of allowance. Later she wants to take tax free cash from a second pot of £400,000. A quarter would be £100,000, but only £68,275 can be paid tax free. Any extra lump sum would be taxed as income, and her LSA would then be nil.

What mistakes come up most often?

  • Assuming each scheme has its own £268,275 allowance. It is a single limit across all schemes.
  • Forgetting crystallisations before April 2024, or failing to apply for a certificate before taking the next lump sum when less than 25% was taken.
  • Not giving the scheme the protection reference, so the standard allowance is used.
  • Taking an UFPLS without realising it also triggers the money purchase annual allowance.
  • Confusing the lump sum allowance with the annual allowance, which limits saving rather than withdrawals; see also what income is tax free.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.