What you need to know: LSA + LSDBA : the new pension allowances
Quick answer: From April 2024, the Lifetime Allowance was abolished. In its place: the Lump Sum Allowance (LSA) of £268,275 caps the total tax-free cash you can withdraw from pensions during your lifetime, and the Lump Sum and Death Benefit Allowance (LSDBA) of £1,073,100 caps the total tax-free amount across lifetime + death lump…
Key points:
- Lifetime Allowance: £1,073,100 cap on pension value at the moment of crystallisation.
- Above the LTA: 55% tax on lump sums, 25% on income (in addition to income tax) — sometimes 75% combined.
From April 2024, the Lifetime Allowance was abolished. In its place: the Lump Sum Allowance (LSA) of £268,275 caps the total tax-free cash you can withdraw from pensions during your lifetime, and the Lump Sum and Death Benefit Allowance (LSDBA) of £1,073,100 caps the total tax-free amount across lifetime + death lump sums. Withdrawals above these caps are taxed at your marginal income tax rate (20%/40%/45%). The 25% tax-free lump-sum percentage is unchanged — but it's now capped at £268,275 in cash terms regardless of pot size.
What changed in April 2024
Pre-April 2024:
- Lifetime Allowance: £1,073,100 cap on pension value at the moment of crystallisation.
- Above the LTA: 55% tax on lump sums, 25% on income (in addition to income tax) — sometimes 75% combined.
From April 2024:
- LTA abolished — no more punitive charges on pension growth above £1.073m.
- LSA introduced: £268,275 (25% of the old LTA) cap on tax-free lump sums during lifetime.
- LSDBA introduced: £1,073,100 (the old LTA) cap on tax-free lump sums + death benefits combined.
- Pension pot growth above these allowances now incurs income tax on withdrawal, not the old LTA charge.
Worked example: how the LSA works
£1.5m pension pot at age 60
| Pot value | £1,500,000 |
| 25% tax-free lump-sum entitlement | £375,000 |
| BUT — LSA cap | £268,275 |
| Tax-free lump sum actually available | £268,275 (LSA-capped) |
| "Lost" tax-free amount (taxable as income) | £106,725 |
The remaining £1,231,725 in the pot is available via drawdown or annuity — taxed at marginal rates when withdrawn. There's no growth-tax penalty anymore for having a large pot, but you don't get extra tax-free cash beyond the £268,275 LSA.
Transitional protection
If you had protection under the LTA regime (Fixed Protection, Individual Protection, Enhanced Protection), it carries over to the new system with a higher LSA. For example:
- Fixed Protection 2016 (£1.25m) → LSA of £312,500 (25% of £1.25m).
- Individual Protection 2014 → personalised LSA based on pot value at 5 April 2014.
- Enhanced Protection (no LTA cap) → LSA unchanged for the protected portion.
Important: if you accrued benefits after your protection date, you may have invalidated the protection. Check with a pensions specialist before crystallising. See the tax adviser recommendation.
The LSDBA — what death benefits actually do
The LSDBA of £1,073,100 caps tax-free withdrawal + death benefit lump sums combined. If you die with money still in a pension:
- Death before age 75: lump sums to beneficiaries (or drawdown by beneficiaries) are tax-free up to the remaining LSDBA. Above LSDBA: taxed at beneficiary's marginal rate.
- Death at age 75 or after: lump sums are taxed at beneficiary's marginal rate from the first £1 (no LSDBA tax-free portion at this age). Drawdown still possible but withdrawn amounts are taxable.
The 75-year-old cliff edge is one of the biggest pre-retirement planning concerns.
The 2027 IHT-on-pensions reform — the next big shift
From April 2027, unused defined-contribution pension pots will be brought into the IHT estate for death-benefit calculation:
- Currently (and through to April 2027): pension pots are outside the estate. Beneficiaries receive either tax-free (if death before 75) or marginal-rate-taxed (if death after 75), but no IHT.
- From April 2027: pension pots remaining at death will be added to the estate. IHT may apply at 40% on amounts above the available nil-rate bands.
- For estates with large pensions and other assets, the combined effect can be 67% tax on the pension at death (40% IHT + 45% income tax on the gross — calculated as IHT first, then income tax on the residual).
The reform makes lifetime spending from pensions much more attractive than holding for inheritance. Drawdown strategies are being re-examined as a result.
Sources and methodology
The LSA and LSDBA were introduced by the Finance Act 2024. See HMRC's guidance on lifetime pension allowance changes. The 2027 IHT-on-pensions reform was announced in the Autumn Statement 2024 with implementation from April 2027. For complex pension situations, see the tax adviser recommendation (note: regulated pension drawdown advice requires FCA authorisation — different from tax adviser scope).
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