Lump sum allowance

When you access a pension, you’ll usually be able to take up to 25% tax-free – this is known as a tax-free lump sum.

The tax-free amount you take will be checked against two allowances:

  • A lump sum allowance of £268,275
  • A lump sum and death benefit allowance of £1,073,100

These new allowances replace the now-abolished pension lifetime allowance.

What is the lump sum allowance?

The lump sum allowance (LSA) will be £268,275 for most people.

This allowance is designed to cap the tax-free lump sums you can take from your pensions in your lifetime.

What counts towards the lump sum allowance?

There are two tax-free payments which count towards the allowance:

  • Tax-free lump sums (PCLS)
  • The tax-free part of a pension lump sum (sometimes called a UFPLS)

Example

Marnie has a SIPP worth £200,000.

She takes a tax-free lump sum of £50,000 and moves the rest into drawdown.

That leaves Marnie with a remaining lump sum allowance of £218,275, and a lump sum and death benefit allowance of £1,023,100.

If you’ve already accessed a pension, the amount of allowance you have left will be lower.

What happens if I go over the lump sum allowance?

Once you’ve used your lump sum allowance, anything you take from your pension will be subject to income tax at your marginal rate.

What is the lump sum and death benefit allowance?

The lump sum and death benefit allowance (LSDBA) is set at £1,073,100 for most people.

This allowance is a cap on the total tax-free lump sums that can be paid to you in your lifetime and to your beneficiaries when you die.

Like the LSA, it is reduced by tax-free cash payments you take, PLUS any:

  • Serious ill health lump sums (paid if you’re terminally ill) paid to you before age 75
  • Tax-free lump sums paid to beneficiaries if you die under age 75
What happens to my pension when I die?

What if I transfer my pension overseas?

Keep in mind that an overseas transfer allowance – set at £1,073,100 – will apply if you transfer to a qualifying overseas pension. You’ll pay a 25% charge on anything you transfer above the overseas allowance.

Could my allowances be different to the standard amounts?

If you’ve already accessed a pension, or you applied for protection from the old lifetime allowance, your allowances will be different. Learn more by choosing the section that applies to you:

  • I’ve got protection from the old lifetime allowance

  • I accessed a pension before 6 April 2024 – how much allowance do I have?

  • If you didn’t take 25% tax-free cash – you might be able to apply for more


It’s important you seek specialist advice if you’re thinking of applying for a certificate. AJ Bell can’t give you financial advice.