Guide · Pensions
UK Pension Lifetime Allowance Replaced — LSA & LSDBA Explained (2025/26)
The Lifetime Allowance (LTA) — the £1,073,100 ceiling that for two decades capped how much pension wealth a person could accumulate tax-efficiently — was abolished from 6 April 2024. In its place sit two new, narrower allowances: the Lump Sum Allowance (LSA) of £268,275 that caps total tax-free lump sums during your lifetime, and the Lump Sum and Death Benefit Allowance (LSDBA) of £1,073,100 that adds in tax-free death benefits to beneficiaries. There is no longer a cap on the size of your pot or the taxable pension income you can draw — just on the tax-free cash. This guide walks through the new mechanics, the maths, transitional certificates, protections inherited from the old regime, the looming April 2027 IHT change, and how it all interacts with the Annual Allowance.
- LTA abolished from 6 April 2024 — no more 25% / 55% LTA charges.
- LSA = £268,275 — lifetime cap on tax-free lump sums.
- LSDBA = £1,073,100 — wider cap that also covers lump-sum death benefits.
- 25% PCLS still works — but only up to remaining LSA.
- April 2027: unused DC pension funds enter the IHT estate.
From LTA to LSA — what changed in April 2024
For most of the past two decades, the central constraint on UK pensions was the Lifetime Allowance — originally £1.5m, peaking at £1.8m, frozen at £1,073,100 from 2020/21. Crystallising benefits in excess of the LTA triggered a one-off charge: 25% on amounts taken as income, 55% on amounts taken as a lump sum. After the LTA charge was removed in 2023/24 as a stepping stone, the Finance Act 2024 abolished the LTA entirely from 6 April 2024 and replaced it with a new two-allowance framework.
The first allowance is the Lump Sum Allowance (LSA), set at £268,275 — exactly 25% of the old £1,073,100LTA. The LSA is a lifetime cap on the total tax-free lump sums any one person can take from all of their registered pensions combined. Every PCLS (the "25% tax-free cash") and every tax-free portion of a UFPLS uses up some LSA. Once the LSA is exhausted, further lump-sum withdrawals are simply taxed as ordinary pension income at your marginal income-tax rate.
The second allowance is the Lump Sum and Death Benefit Allowance (LSDBA), set at £1,073,100 — the same headline figure as the old LTA. The LSDBA is a broader cap that covers the LSA plus additional lump-sum events: serious-ill-health lump sums (payable at any age if life expectancy is under one year), defined-benefit scheme lump sums on death, and lump-sum death benefits paid to beneficiaries when a member dies before age 75. Whatever you spend out of your LSA also reduces your remaining LSDBA, so the two run partly in parallel.
Crucially, neither allowance caps the size of your pension pot, the level of taxable income you can draw in retirement, or the value of a DB pension. You can accumulate £3m of DC funds and simply pay income tax on everything beyond the LSA-protected 25%. That is a fundamentally different regime to the old LTA, where excess pot value itself attracted a tax charge.
PCLS, UFPLS and how the 25% rule still works
The two main routes to tax-free pension cash remain:
- PCLS (Pension Commencement Lump Sum) — taken at the point benefits are crystallised into drawdown or annuity. The tax-free element is the lower of (a) 25% of the amount being crystallised and (b) your remaining LSA.
- UFPLS (Uncrystallised Funds Pension Lump Sum) — paid 25% tax-free and 75% taxed as pension income, without putting the residue into drawdown. The 25% tax-free portion is again capped by remaining LSA; the 75% is added to other income for that tax year.
Defined-benefit schemes typically pay a scheme-specific lump sum on retirement (often called a "pension commencement lump sum" but calculated by commutation factors rather than 25% of a pot). These also use LSA, with the relevant lump-sum figure capped at the lower of the scheme entitlement and your remaining allowance.
Worked LSA examples
Example 1 — £500,000 DC pot
25% of pot = £125,000. That is well below the £268,275 LSA, so the entire £125,000 PCLS is tax-free. Remaining LSA after this crystallisation = £143,275. The other £375,000 can be left in drawdown or taken as taxable income over future years.
Example 2 — £1,200,000 DC pot, full crystallisation
25% of pot = £300,000. But LSA caps the tax-free figure at £268,275.
Tax-free PCLS = £268,275.
Excess of £31,725 is paid as taxable pension income in the year of payment and added to other income for that year. At a 45% additional rate the extra tax is £14,276. Better practice would normally be to leave that £31,725 in the pension and draw it as income across multiple tax years.
Example 3 — Two pensions in sequence
Pot A: £800,000 crystallised first → 25% tax-free = £200,000. LSA used = £200,000. Remaining LSA = £68,275.
Pot B: £600,000 crystallised next → 25% of pot = £150,000, but remaining LSA is only £68,275, so the tax-free element of Pot B is capped at £68,275. The other £81,725 of would-be PCLS becomes taxable pension income.
Transitional Tax-Free Amount Certificate (TTFAC)
If you crystallised benefits before 6 April 2024, schemes by default deduct 25% of the LTA you used at the time from your standard LSA. That works fine when you actually took the full 25% tax-free cash — but many people did not, especially DB scheme members whose commutation produced lump sums of less than 25% of the LTA used. In that case you can apply for a TTFAC, which records your real prior tax-free amount; schemes then deduct only that smaller figure from your LSA and LSDBA.
The TTFAC must be applied for before your first benefit-crystallisation event on or after 6 April 2024. Once issued, it is binding across all your schemes — so it cannot be undone if it turns out to give a worse result. Advisers usually model both pathways before applying.
LSDBA mechanics in detail
The LSDBA is a £1,073,100 cap covering all of the LSA, plus:
- Serious-ill-health lump sum— payable at any age where a registered medical practitioner certifies life expectancy below 12 months. The full uncrystallised fund can be taken tax-free up to the LSDBA. Excess is taxed as the recipient's income (or, if posthumous, the beneficiary's income).
- Defined-benefit lump-sum death benefits — typically a multiple of salary or pension from a DB scheme when a member dies in service or as a deferred member.
- Lump-sum death benefits from DC schemeswhen the member dies before age 75 — these are paid tax-free to the beneficiary within the LSDBA. Above the LSDBA, the excess is taxed as the beneficiary's income.
- Scheme pension lump sums — some DB schemes pay an automatic lump sum on commencement of pension; this counts towards LSA and LSDBA.
Death benefits paid afterage 75 are taxed as the beneficiary's income regardless of LSDBA position — they never use up LSDBA because they are not tax-free in the first place. That makes the LSDBA, in practice, a constraint on pre-75 death-benefit planning.
April 2027 — pensions enter the IHT estate
The most significant policy shift since LTA abolition is the announced inclusion of unused DC pension funds in the deceased's estate for Inheritance Tax from 6 April 2027. Historically, pensions sat outside the estate because they were paid at the discretion of trustees. From April 2027 the default position will reverse: most unused DC funds and lump-sum death benefits will be brought into the estate, with the pension scheme administrator responsible for paying any IHT due on the pension element before distributing benefits.
The income-tax position is unchanged — pre-75 deaths still produce tax-free benefits within the LSDBA and post-75 deaths still produce income-taxable benefits — but a 40% IHT layer will frequently sit on top. The LSDBA does not protect from IHT; it protects from income tax. So planning around the LSDBA from 2027 onwards needs to consider both axes simultaneously: stay within the LSDBA to keep the income-tax exemption, and use ordinary IHT planning (gifting, life cover, spousal exemption) to deal with the new IHT layer.
One side-effect is that the long-standing "leave the pension untouched, spend the ISAs" mantra will reverse for many people. From 2027 the IHT-efficient asset is often the ISA, not the pension.
Annual Allowance — a separate constraint
The LSA and LSDBA are lifetime allowances on tax-free output. The Annual Allowance (AA) is an annual cap on tax-relieved input:
| Allowance | 2025/26 amount | Notes |
|---|---|---|
| Annual Allowance (standard) | £60,000 | Total contributions (employer + member + DB accrual). |
| Tapered AA — minimum | £10,000 | Adjusted income above £260,000 → £1 taper per £2 over. |
| MPAA | £10,000 | Triggered by flexible DC access (e.g. UFPLS, drawdown income). |
| Carry-forward | 3 years | Unused AA from prior 3 tax years can be carried forward (not MPAA). |
Note that taking a tax-free PCLS does not trigger the MPAA — only the taxable element of a flexible-access withdrawal does. So someone taking PCLS only and leaving the residue untouched can still contribute up to the full standard AA.
Protection regimes from the old LTA
People who registered for LTA protection before 6 April 2024 keep that protection in a translated form:
- Enhanced Protection (registered by 2009) — no LTA cap historically. Holders generally keep the higher tax-free cash entitlement crystallised on 5 April 2024, frozen.
- Fixed Protection 2012 (£1.8m), 2014 (£1.5m) and 2016 (£1.25m) — give an LSA equal to 25% of the protected LTA: respectively £450,000, £375,000 and £312,500. LSDBA equals the full protected LTA.
- Individual Protection 2014 (cap £1.5m) and 2016(cap £1.25m) — a personalised LSA equal to 25% of the individual's protected LTA value.
- Primary Protection— a personalised LSA based on the holder's registered tax-free cash certificate.
To access these higher allowances, the scheme administrator needs to see the HMRC protection certificate (or its reference and verification through the Manage and Register Pension Schemes service). Without a certificate on file, the scheme will apply the standard £268,275 LSA by default.
Worked scenarios
Scenario A — Higher-earner with £900,000 DC pot
No prior crystallisations. 25% of £900,000 = £225,000 — comfortably inside the LSA, so the full £225,000 can be taken tax-free at the point of crystallisation. Residual £675,000 goes into flexi-access drawdown and is drawn as taxable income across retirement to stay inside basic / higher-rate bands. LSA used = £225,000; LSDBA used = £225,000; remaining LSA = £43,275; remaining LSDBA = £848,100.
Scenario B — NHS consultant approaching £1,000,000 CETV
DB scheme commutation typically pays a lump sum of around 3× annual pension, often below the strict 25% mathematical maximum. If the scheme lump sum on retirement is, say, £180,000, that uses only £180,000 of LSA — comfortably below £268,275. A TTFAC is unlikely to help here because the scheme has not yet crystallised; the planning lever is whether to take the maximum commutation (lower future pension) or a smaller lump sum (higher index-linked pension for life).
Scenario C — Self-employed with £2,000,000 DC pot
25% of pot = £500,000, but LSA caps the tax-free element at £268,275. Sensible sequencing: crystallise £1,073,100 first, take the maximum £268,275 PCLS, leave the £804,825 residue in drawdown. Leave the other £926,900 uncrystallised. Going forward, draw taxable income from the crystallised drawdown pot across multiple tax years, and consider UFPLS from the uncrystallised slice if cash-flow needs spike (each UFPLS has 0% LSA cost because the LSA is already used). From 2027, IHT planning becomes critical given the size of unused funds.
Common mistakes
- Still believing the LTA exists. Some online calculators and even some scheme communications continue to reference the old £1,073,100 LTA. Post-April-2024, the only caps that matter are LSA and LSDBA.
- Missing the TTFAC deadline. A TTFAC must be applied for before the first relevant benefit-crystallisation event on or after 6 April 2024. Cash the first PCLS and the opportunity is gone — schemes lock to the default 25%-of-prior-LTA-used calculation.
- Double-counting LSA across schemes. Each scheme administrator only sees the LSA they think you have left, based on what you tell them. The lifetime cap is personal to you; failing to report prior crystallisations to a new scheme can produce excess tax-free payments that HMRC will later claw back.
- Forgetting to lodge old protection certificates. Enhanced or Fixed Protection only translates into a higher LSA if the scheme has evidence on file. Re-confirming protection at the point of crystallisation is essential.
- Ignoring 2027 IHT. Plans built on the historical IHT-free treatment of pensions need to be revisited well before April 2027, especially where life cover, trusts or substantial estates are involved.
Official references
The detailed rules sit in HMRC's Pensions Tax Manual at PTM071000 onwards (the replacement regime), with supporting modules covering the LSA, LSDBA, transitional certificates, protected lump sums and scheme-administrator obligations. The underlying legislation is in Schedule 9 of the Finance Act 2024. The gov.uk page "Tax on your private pension contributions" provides a plain-English summary of how the LSA, LSDBA, Annual Allowance and MPAA fit together for individuals.
Bringing it together
The pensions tax landscape from April 2024 is genuinely simpler in one respect — there is no more LTA charge to fear — but more nuanced in another: two separate allowances, transitional certificates, inherited protections and the looming April 2027 IHT change all need to be coordinated. For pots comfortably below £1,073,100, planning rarely needs to be exotic: take 25% tax-free, draw sensibly, watch the Annual Allowance during the contribution phase. For larger pots, layered DB + DC arrangements, or anyone with a pre-2024 protection certificate, professional advice quickly pays for itself.