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Abolition of Lifetime Allowance


At the Spring Budget on 15 March 2023, the Chancellor announced that the government would remove the Lifetime Allowance charge from 6 April 2023, before fully abolishing the Lifetime Allowance (LTA) in a future Finance Bill. 

On 18 July 2023, further details emerged. A policy paper was published alongside draft legislation. This clarified that the lifetime allowance and most benefit crystallisation events (BCE) would be removed.

At Autumn Statement 2023, the government reiterated that the abolition was still going ahead on 6 April 2024, publishing a policy paper confirming the final rules. This was followed by the publication of a Finance Bill on 29 November 2023, which provided further draft legislation.

The new policy paper and draft legislation clarify the changes that will abolish the LTA entirely and confirms the tax treatment of pension savings.

An overview of the new rules

Extensive change to legislation is needed to abolish the LTA and for those working in the industry, there are some important features.  However, most individuals will find little change to their available tax-free cash or how their pension benefits are taxed. 

Below is a summary of some of the main changes that come into effect from 6 April 2024:

  • Relevant Benefit Crystallisation Events – all existing Benefit Crystallisation Events (BCEs) will be removed, and Relevant Benefit Crystallisation Events (RBCEs) will be introduced. 

    Unlike BCE’s, RBCEs will only occur on the payment of a relevant lump sum or a lump sum death benefit.
  • ‘Lump Sum Allowance’ – a new allowance, set at £268,275. This effectively replaces the LTA by limiting the amount of tax-free cash a member can take. For example, when first accessing benefits, a member can still take 25% of their fund tax free as long as they have sufficient ‘lump sum allowance’ remaining.
  • ‘Lump Sum and Death Benefit Allowance’ – a second new allowance, set at £1,073,100. This limits the amount of a lump sum death benefit that can be paid tax free on death before 75. It is reduced by the amount of tax-free cash that a member took in their lifetime.
  • ‘Overseas Transfer Allowance’ – a third new allowance, set at an amount equal to the member’s ‘lump sum and death benefit allowance’. This limits the amount of funds that can be transferred to a QROPS without becoming subject to the existing ‘Overseas Transfer Charge’.
  • LTA transitional protections – The above allowances may be increased where a member holds a form of LTA protection, lump sum protection or an LTA enhancement factor. 

    This broadly means that the individual’s ‘Lump Sum Allowance’ will be equivalent to their previous tax-free cash entitlement and that their ‘Lump Sum and Death Benefit Allowance’ and ‘Overseas Transfer Allowance’ will be equivalent to their available LTA under the old regime.

    Anyone who is eligible for either Fixed Protection 2016 (FP16), Individual Protection 2016 (IP16) or who became eligible for an LTA enhancement factor before 6 April 2024 will now have until 6 April 2025 to apply for this. 
  • ‘Transitional tax-free amount certificates’ – Where benefits were taken (crystallised) prior to 6 April 2024, an individual’s ‘lump sum allowance’ and ‘lump sum and death benefit allowance’ will be reduced by the amount of tax-free cash previously taken, which is assumed to be 25% of their previously expended LTA. 

    However, where someone received less tax-free cash then this 25% assumption, they can evidence this to their scheme in exchange for a ‘Transitional tax-free amount certificate’. This certificate means that their lump sum allowance’ and ‘lump sum and death benefit allowance’ will only be reduced by the tax-free cash that they actually took.

Areas of previous concern

When the original policy paper and initial draft legislation were published in July, a couple of areas raised some concerns within the industry. The new draft legislation and policy paper have provided some welcome new details: 

  • BCE5C and BCE5D – The original policy paper suggested that where a crystallisation event currently happens on death before 75, a pension death benefit could no longer be paid tax free.

    This is where a beneficiary’s drawdown (BCE5C) or beneficiary’s annuity (BCE5D) is purchased. 

    The new policy paper and draft legislation clarifies that a beneficiary’s drawdown or annuity can now still be paid tax free. In addition, unlike a lump sum, it will not be limited by a maximum tax-free ceiling, such as the deceased’s remaining ‘lump sum and death benefit allowance’.
  • Trivial Commutation and small pots – The original proposals stated that where someone took a tax-free element of a trivial commutation lump sum, winding up lump sum or small lump sum (small pot), it would reduce their ‘lump sum allowance’ and ‘lump sum and death benefit allowance’.

    However, in a change to the rules, these small lump sums can now be taken without affecting an individual’s allowances. However, the policy paper confirms that someone will need to have some available ‘allowance’ to take those lump sums.


With 6 April 2024 fast approaching, clarity on the new rules was much needed. The change in approach to both death benefits and small pots will also be welcomed.

Since the removal of the LTA charge, many high net-worth individuals have looked again at pensions as an estate planning vehicle and restarted pension contributions. For these individuals, the new rules only heighten the importance of making sure death benefit nominations are in place and name all individuals that they may wish to eventually benefit.

This is because tax free lump sums on death will now be limited to the remaining ‘lump sum and death benefit allowance’. However, if a beneficiary qualifies as a ‘nominee’, they will be eligible for beneficiary’s drawdown or an annuity, thereby allowing a fund of any size to potentially be received tax free.

This is a complex area with over 100 pages of draft legislation in the Finance Bill. Due to the tight timescales, HM Revenue & Customs (HMRC) couldn’t consult on the draft Finance Bill before publication. Ongoing discussions with the pension industry will continue and the Bill includes power to lay regulations to correct any drafting errors.

While the substance of the measures are set some detail may change between now and 6 April 2024. We will provide further updates of any changes, or more detailed aspects of the new rules, as further details become known – including any potential financial planning implications.

Important Information

Please note this is for general information only and is based on LV=’s understanding of the relevant legislation and regulations and may be subject to change.

The tax treatment of benefits depends on individual circumstances, and may be subject to change in the future.

The use of this document is at your own risk, and the content should not be used for the provision of professional advice.

LV= accept no liability for any damages, losses or causes of action of any nature arising from your use of this document.

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