From 6 April 2024, the Government abolished the Lifetime Allowance (LTA) and introduced two new limits that affect the tax treatment of certain lump sums:
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Lump Sum Allowance (LSA) – limits the total tax-free pension commencement lump sums you can take in your lifetime (standard amount £268,275).
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Lump Sum and Death Benefit Allowance (LSDBA) – limits the total tax-free lump sums that can be paid in respect of an individual, including certain lump sum death benefits (standard amount £1,073,100).
You may still see references to the LTA on older benefit statements and in relation to benefits paid before 6 April 2024.
Do death benefit lump sums count as part of the Lifetime Allowance (LTA)?
For deaths and lump sums paid before 6 April 2024:
In most cases, yes. Under the old rules, lump sum payments made because of a member’s death could be tested against the member’s LTA, alongside any benefits the member had already taken.
For deaths and lump sums paid from 6 April 2024 onwards:
Lump sum death benefits are not tested against the LTA (as it no longer applies). Instead, where the rules require it, they are tested against the LSDBA to determine whether any part of the lump sum is taxable.
A lump sum may be payable when an active member, a member with a preserved pension, or a pensioner dies.
HM Revenue & Customs (HMRC) set the rules around pension tax allowances and lump sum taxation.
Do pensions for dependants count towards the Lifetime Allowance?
No. Pensions paid to dependants (for example, an adult dependant’s pension or children’s pension) are not tested against the deceased member’s LTA, and they are not lump sums that count towards the LSA/LSDBA.
(These pensions can still be taxable as pension income, depending on the recipient’s personal tax position.)
Who has to check to see if the member has used up all of the Lifetime Allowance?
The member’s personal representative (the person responsible for administering the estate) is responsible for understanding the deceased member’s pension tax position and, where required, reporting this to HMRC.
If any tax is due on a lump sum, it is normally payable by the person receiving the lump sum, and collected by HMRC.
You can find more information about the lump sum allowances and how they work on GOV.UK.
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Saving for my Future - Lifetime Allowance
