PTM175100 - Lump sum allowance and lump sum and death benefit allowance: Enhancement factors: Overview
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.
If you are looking for information about enhancement factors pre-April 2024 please see The National Archive.
Introduction
Paragraph 6A Schedule 36 Finance Act 2004
The Registered Pension Schemes (Provisions of Information) Regulations – SI 2006/567
Prior to 6 April 2024 the enhancement factors were introduced to allow an individual to determine how much extra should be added to their standard lifetime allowance at a benefit crystallisation event to obtain their individual lifetime allowance level. As of the 6 April 2024 the lifetime allowance has been abolished, however individual’s are now entitled to have their lump sum and death benefit allowance (PTM172000) enhanced by the enhancement factors at specific relevant benefit crystallisation event.
The member must inform the scheme administrator before the payment of a benefit where they intend to rely on an enhanced allowance. The member should evidence their entitlement to the scheme administrator by quoting the reference number given on the certificate.
In most cases where a member is entitled to an enhancement factor they are likely to be entitled to just one factor. If they are entitled to more than one enhancement factor all the relevant factors are aggregated and applied as a single allowance enhancement factor at any relevant benefit crystallisation event.
The enhancement factors
Paragraph 20A-20G Schedule 36 Finance Act 2004
The enhancement factor calculated for an individual represents the extra amount of lump sum and death benefit allowance that will not be liable to income tax at the recipient’s marginal rate. The enhancement factors are:
- The primary protection enhancement factor (PTM175500)
- The pre-commencement pension credit factor (PTM176230)
- The overseas transfer enhancement factor (PTM172100),
- The pension credit factor (PTM175400), and
- The non-residence factor (PTM175310)
To see how these factors are each calculated please see the corresponding guidance pages.
From 5 April 2025, individuals will be unable to apply for any of the above enhancement factors.
The factor should go to 2 decimal places and should be a rounded-up figure, so for example if the calculation produces a factor of 0.231 this becomes 0.24.
How the enhancement factor is applied at a relevant benefit crystallisation event
When an individual becomes entitled to an enhancement factor, the level of their lump sum and death benefit allowance is enhanced at every relevant benefit crystallisation event that occurs in relation to that individual from that point on.
How the enhancement is given depends on:
- The form of enhancement factor,
- When the event triggering the enhancement factor occurred and when HMRC was notified of this event.
This is also impacted by whether or not an individual has any one or more of the following protections:
- Fixed protection (FP12),
- Fixed protection 2014 (FP14),
- Fixed protection 2016 (FP16),
- Individual protection 2014 (IP14), and
- Individual protection 2016 (IP16).
Detailed guidance, with examples, on how to apply an enhancement factor at a relevant benefit crystallisation event is at PTM175500.