The lifetime allowance dominated R04 for over a decade, then disappeared. Many candidates revise from notes that still talk about benefit crystallisation events and 55% charges, which is a fast route to losing marks. The replacement framework is simpler than the old regime, but it has its own vocabulary and its own traps.
The three allowances that replaced the LTA
| Allowance | Amount | What it limits |
|---|---|---|
| Lump sum allowance (LSA) | £268,275 | Tax free cash taken in the member lifetime |
| Lump sum and death benefit allowance (LSDBA) | £1,073,100 | Tax free lump sums in life and on death before 75 |
| Overseas transfer allowance (OTA) | £1,073,100 | Transfers to a qualifying recognised overseas pension scheme |
Notice the relationship between the first two figures. The LSA is exactly 25% of the old standard lifetime allowance, and the LSDBA is the old standard lifetime allowance itself. Examiners like that link because it shows whether you understand where the numbers came from.
What uses up the lump sum allowance
Only tax free amounts count. The payments that reduce the LSA are:
- The pension commencement lump sum (PCLS), normally 25% of the amount crystallised
- The tax free 25% element of an uncrystallised funds pension lump sum (UFPLS)
- Certain stand alone lump sums under protected rights
Crucially, the taxable 75% of an UFPLS does not use LSA, and neither does moving funds into drawdown without taking cash. Buying an annuity with no tax free cash uses none of it either. Candidates who assume that any crystallisation reduces the allowance are applying old LTA thinking.
What uses up the LSDBA
The LSDBA is used by everything that uses the LSA, plus:
- Lump sum death benefits paid from uncrystallised or drawdown funds where the member died before age 75
- Serious ill health lump sums paid before age 75
- The tax free element of certain trivial commutation and small pot payments
Two points are heavily tested. First, death after age 75 does not use the LSDBA at all, because those lump sums are taxable at the recipient marginal rate anyway. Second, death benefits paid as income rather than a lump sum, for example beneficiary drawdown, do not touch the LSDBA. That is why beneficiary drawdown remains such a common recommendation in case study answers.
Worked example
Priya, aged 62, has a SIPP worth £1,400,000, all uncrystallised, with no protections.
She takes full tax free cash. Twenty five per cent of £1,400,000 is £350,000, but the LSA caps her tax free cash at £268,275. To generate that amount she crystallises £1,073,100, leaving £326,900 uncrystallised. The £804,825 balance of the crystallised amount goes into drawdown and is taxable when drawn.
She has now used her full LSA and £268,275 of her LSDBA, leaving £804,825 of LSDBA available. If she died at 64 with £1,000,000 remaining, £804,825 could pass as a tax free lump sum and the excess would be taxable on the recipients at their marginal rates. Paying the whole amount as beneficiary drawdown instead would keep it tax free, because income death benefits before 75 are not tested against the allowance.
Protections still matter
Anyone with primary, enhanced, fixed or individual protection carries a higher personal LSA and LSDBA. If a question mentions a protection certificate, your first job is to recalculate the two allowances rather than reach for the standard figures. Someone with fixed protection 2016, for example, has an LSA of £312,500 and an LSDBA of £1,250,000.
Where a member took benefits before 6 April 2024, a transitional calculation applies. The default is that 25% of the lifetime allowance previously used counts as LSA used. A member can instead apply for a transitional tax free amount certificate where the default overstates the cash actually taken, which is common for people who took a small PCLS from a defined benefit scheme with a generous commutation factor.
What has not changed
The abolition of the LTA did nothing to the input side of the rules, and this is where most R04 marks still sit:
- Annual allowance £60,000, with carry forward from the three previous tax years
- Tapered annual allowance reducing by £1 for every £2 of adjusted income above £260,000, subject to a threshold income test of £200,000, down to a £10,000 floor
- Money purchase annual allowance £10,000, triggered by flexible access
- Relevant UK earnings limiting relievable personal contributions
If a question mixes an LSA calculation with a taper calculation, deal with them separately. They test different things and share no figures.
Exam technique for this topic
- Read the age. Before or after 75 changes the death benefit answer completely.
- Check for protections before using £268,275 or £1,073,100.
- Separate tax free from taxable. Only the tax free element touches the allowances.
- Ask whether the benefit is a lump sum or income. Income death benefits sit outside the LSDBA.
- Do not mention benefit crystallisation events or the 25% and 55% excess charges. They no longer exist.
The examiners have been clear that the new allowances are core syllabus territory. Learn the three numbers, learn what each one measures, and practise one lifetime example and one death benefit example until the sequence is automatic.