The Lump Sum Allowance (LSA) is the UK's 2024-onward limit on the total tax-free cash you can take from pension schemes during your lifetime. It is set at £268,275 for most savers — the same as 25% of the old £1,073,100 Lifetime Allowance, but now expressed as a hard cash cap rather than a percentage of the pot. The LSA replaced the abolished Lifetime Allowance from 6 April 2024.
What changed in April 2024
Until April 2024, UK pensions had a Lifetime Allowance (LTA) of £1,073,100. Pots above that faced an excess tax charge of 55% on lump sums or 25% on income. The LTA was abolished in two phases: the charge was zeroed in April 2023, and the rules were formally replaced in April 2024 with three new allowances:
- Lump Sum Allowance (LSA) — £268,275. Tax-free cash lump sums.
- Lump Sum and Death Benefit Allowance (LSDBA) — £1,073,100. Tax-free cash including death benefits.
- Overseas Transfer Allowance (OTA) — £1,073,100. Limit on QROPS transfers.
For most savers planning retirement, the LSA is the one that bites. It caps tax-free pension cash at £268,275 — slightly more than the average UK pension pot but well within reach for higher earners and senior public-sector workers.
How the LSA works in practice
When you crystallise pension benefits (start drawing income or take a lump sum), 25% of the crystallised amount is typically tax-free — up to the LSA cap. Above the LSA, lump sums are taxed at your marginal income tax rate (20%/40%/45%).
| Total pension pot | Tax-free cash available |
|---|---|
| £200,000 | £50,000 (25%, well under LSA) |
| £500,000 | £125,000 (25%, under LSA) |
| £1,000,000 | £250,000 (25%, under LSA) |
| £1,073,100 | £268,275 (25% — exactly at LSA) |
| £1,500,000 | £268,275 (LSA capped — the additional £106,725 of "tax-free" is taxed at marginal rate) |
So once your pension exceeds £1,073,100, additional contributions don't increase the tax-free cash you can take. They do still benefit from tax relief on the way in and tax-free growth — just no extra tax-free withdrawal.
Protected LSAs — higher caps for some savers
If you registered for "protection" under the old LTA regime, your LSA is higher than £268,275:
- Fixed Protection 2016 — LSA of £312,500 (25% of £1,250,000)
- Fixed Protection 2014 — LSA of £375,000 (25% of £1,500,000)
- Fixed Protection 2012 — LSA of £450,000 (25% of £1,800,000)
- Individual Protection 2016 — LSA = 25% of the lower of pot value at 5 April 2016 or £1,250,000
- Enhanced Protection — LSA usually = 25% of your pot value at the relevant date
If you have any of these, the higher LSA is preserved subject to the conditions originally attached. Most often this means you can't make new contributions to the protected scheme.
Common LSA mistakes
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LSA, LSDBA and OTA introduced by Finance Act 2024. Rules at HMRC Pensions Tax Manual. Protection registration via gov.uk/protect-your-lifetime-allowance.
UK Tax Drag is not authorised by the Financial Conduct Authority and does not provide regulated financial advice — see the content disclaimer for the full position. The methodology page documents how every calculator is built and reviewed.
Related
- Tax-free lump sum calculator — optimal withdrawal phasing
- Should I take 25% tax-free lump sum? — the timing decision
- Pension drawdown tax calculator — income tax on the taxed portion above the LSA
- Pension tax traps — common mistakes in pension withdrawal
- Full UK money glossary
- FAQ library
Worked example: taking tax-free cash within the LSA
The standard rule is that each time you crystallise pension benefits, up to 25% of the amount crystallised can be taken as a tax-free lump sum — formally a pension commencement lump sum (PCLS) — provided your running total of tax-free cash stays within the £268,275 LSA.
Imagine a saver, Priya, with a £600,000 defined-contribution pot and no protected allowance:
- She decides to crystallise £400,000 to fund the first phase of retirement.
- Tax-free cash = 25% of £400,000 = £100,000, comfortably inside the LSA.
- The remaining £300,000 moves into drawdown; any income she later draws from it is taxed at her marginal rate.
- Her LSA used so far is £100,000, leaving £168,275 of tax-free headroom.
If Priya later crystallises the remaining £200,000, she can take another 25% = £50,000 tax-free, bringing her lifetime total to £150,000 — still well under the cap. Because she will never accumulate £268,275 of tax-free cash from a £600,000 pot, the LSA never actually constrains her: 25% of £600,000 is only £150,000. The cap bites only once total tax-free entitlement would exceed £268,275, i.e. on pots above roughly £1,073,100.
What happens if you exceed the LSA
If the tax-free cash you try to take would push your lifetime total above £268,275, the excess does not simply disappear — it is paid out but taxed at your marginal income tax rate (20%, 40% or 45%). This is gentler than the old Lifetime Allowance charge, which could reach 55% on excess lump sums, but it still means careful sequencing matters for large pots.
Sitting above the LSA is the Lump Sum and Death Benefit Allowance (LSDBA) of £1,073,100. The LSDBA is a wider cap that counts both the tax-free lump sums you take in life and certain tax-free lump sums paid to your beneficiaries if you die before age 75. Every pound of tax-free PCLS you draw also reduces your remaining LSDBA. For most people the LSA is reached first and is the binding constraint; the LSDBA mainly affects those who take little tax-free cash in life but hold a very large pot at death.
A practical implication: if you hold (or could still register for) one of the protected allowances described above, taking tax-free cash carelessly — or making a new contribution that invalidates Fixed Protection — can permanently cut your cap from, say, £450,000 back to £268,275. Always confirm your protected figure on the HMRC online service before taking a lump sum.
How the LSA interacts with the annual allowance
The LSA governs money coming out of a pension; the annual allowance governs money going in. They are separate limits but interact over a saving lifetime.
- The standard annual allowance is £60,000 (2026/27) — the most you can contribute across all pensions each year with tax relief, including employer contributions.
- High earners can see this tapered down to as little as £10,000, and anyone who has flexibly accessed a defined-contribution pension is restricted by the Money Purchase Annual Allowance (MPAA) of £10,000.
- Taking only your tax-free cash and moving the rest into drawdown without drawing taxable income does not trigger the MPAA — but taking any taxable income from flexi-access drawdown usually does.
The planning tension is clear: the annual allowance limits how big a pot you can build with relief, while the LSA limits how much of that pot comes out tax-free. Because the LSA only constrains pots above about £1.07m, most savers should focus on maximising annual-allowance contributions first, and only model the LSA cap once their projected pot approaches seven figures. The order in which you crystallise, and whether you preserve the MPAA, then becomes the key decision.
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