PTM174100 - Lump sum and death benefit allowance: Transitional rules for the tax year 2024-25: Lump sum allowance 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 certificate
Transitional tax-free amount certificates and lump sum allowance availability
Used-up lifetime allowance
Determining the members LTA previously-used amount
From 6 April 2024, individuals will be entitled to a new lump sum allowance. An individual’s lump sum allowance is £268,275 unless they have a protected right to a higher lump sum allowance or transitional rules apply.
If an individual exceeds their available lump sum allowance when a relevant benefit crystallisation event occurs, the excess of their available lump sum allowance will be subject to income tax at the individual’s marginal rate.
Once the first relevant benefit crystallisation event has occurred for an individual, the individual will need to determine their lump sum allowance availability for each subsequent event.
There will be some individuals that have had benefit crystallisation events (BCEs) prior to 6 April 2024. These individuals will need to rely on transitional rules to calculate their lump sum allowance availability at their first relevant benefit crystallisation event.
These transitional rules apply from the 2024-25 tax year.
Relevant benefit crystallisation event
Chapter 15A Section 637Q ITEPA 2003
For the purposes of the lump sum allowance, a relevant benefit crystallisation event occurs when an individual has becomes entitled to a relevant lump sum.
A relevant lump sum for the purposes of the lump sum allowance is:
- A pension commencement lump sum (PTM63200)
- An uncrystallised funds pension lump sum (PTM63300)
- A stand-alone lump sum (PTM063430)
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, the individual can decide the order in which they are considered to occur.
Benefit crystallisation events pre-April 2024 without a transitional tax-free certificate
Paragraph 125 Schedule 9 Finance Act 2024
If an individual has had one (or more) BCEs occur prior to 6 April 2024, these events must be reflected when calculating the individual’s remaining lump sum allowance availability via the standard transitional calculation.
Where the individual doesn’t hold a valid transitional tax-free amount certificate, this is achieved by deducting 25% of the individual’s lifetime allowance previously-used amount from the lump sum allowance. For most individuals this is £268,275, unless they hold a valid protection.
If the individual’s lifetime allowance previously-used amount after the 25% deduction, is greater than or equal to the lump sum allowance, then the individual’s lump sum allowance after applying the transitional calculation will be nil. This means the individual will be unable to take further lump sums tax-free.
The National Archive website outlines which circumstances would have resulted in a BCE prior to 6 April 2024.
Example 1
George has a relevant benefit crystallisation event on 7 April 2024. He receives a pension commencement lump sum (PCLS) of £20,000. To work out his available lump sum allowance he must first deduct a percentage of the value of any benefit crystallisation events (BCEs) that occurred prior to 6 April 2024.
George does not have a transitional tax-free amount certificate. George’s lifetime allowance previously-used amount at 5 April 2024 is £100,000. 25% of this figure (£25,000) is deducted from his lump sum allowance:
£268,275 - £25,000 = £243,275.
George’s available lump sum allowance at 6 April 2024 is £243,275. Therefore, George’s lump sum allowance is sufficient for him to receive the tax-free PCLS of £20,000.
The amount of the relevant benefit crystallisation event occurring on 7 April 2024 then needs to be deducted from this figure.
£243,275 – £20,000 = £223,275
George’s lump sum allowance at 7 April 2024 is £223,275.
Example 2
Lilian has a relevant benefit crystallisation event on 7 April 2024. She receives an uncrystallised funds pension lump sum (UFPLS) of £10,000. 75% of this lump sum will be subject to income tax at her marginal rate, and 25% will be tax free if she has sufficient lump sum allowance available. To work out her available lump sum allowance she must first deduct a percentage of the value of any benefit crystallisation events (BCEs) that occurred prior to 6 April 2024.
Lillian does not have a transitional tax-free amount certificate. Lilian’s lifetime allowance previously-used amount at 5 April 2024 is £200,000. 25% of this figure (£50,000) is deducted from her lump sum allowance.
£268,275 - £50,000 = £218,275
Therefore, Lillian’s available lump sum allowance at 6 April 2024 is £218,275.
The tax-free element of the relevant benefit crystallisation event occurring on 7 April 2024 then needs to be deducted from this figure.
25% of £10,000 = £2,500
£218,275 - £2,500 = £215,775
Lillian’s lump sum allowance at 7 April 2024 is £215,775
Transitional tax-free amount certificates and lump sum allowance availability
Paragraph 125 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 tax-free amount certificate that has been issued by a registered pension scheme, this will state the amount of the individual’s lump sum transitional tax-free amount.
The lump sum transitional tax-free amount is the total of the following amounts (if any) that the individual was entitled to prior to 6 April 2024:
- Pension commencement lump sums
- Uncrystallised funds pension lump sums
- Stand- alone lump sums
- Any tax-free lump sums 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 transitional tax-free amount.
The lump sum transitional tax-free amount is deducted from the lump sum allowance to calculate the individual’s available lump sum allowance.
If the deduction results in a negative figure, then the available lump sum allowance is nil.
You can read more about transitional tax-free amount certificates at PTM174300.
Example
Eva has a relevant benefit crystallisation event on 17 July 2024. She receives a pension commencement lump sum (PCLS) of £30,000. Eva already has a transitional-tax free amount certificate confirming that her transitional tax-free amount is £10,000.
The information Eva provided to her pension scheme was accurate and complete.
Eva’s transitional tax-free amount is deducted from her lump sum allowance:
£268,275 - £10,000 = £258,275
Eva’s lump sum allowance at 6 April 2024 is £258,275. Therefore, Eva’s lump sum allowance is sufficient for her to receive the tax-free PCLS of £30,000.
The amount of the relevant benefit crystallisation event occurring on 17 July 2024 then needs to be deducted from this figure.
£258,275 - £30,000 = £228,275
Eva’s lump sum allowance at 17 July 2024 is £228,275.
Used-up lifetime allowance
Paragraph 125 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 allowance after applying the transitional calculation will be nil. This means the individual will be unable to take further lump sums tax-free.
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 to do so 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.