LSDBA calculator — death benefit and serious ill-health lump sums

The LSDBA caps the total tax-free lump sums payable across the member's lifetime AND on death — £1,073,100 as standard. Every PCLS consumes both the LSA and the LSDBA; serious ill-health lump sums and tax-free death benefits (death before 75) consume the LSDBA only. For an individual receiving it in their own right, an amount above the remaining allowance is taxed as their pension income at their marginal rate.

The allowance test applies to serious ill-health lump sums and death benefits only where the event is before age 75. After death at 75 or over, no allowance is used and no excess arises: a taxable lump sum death benefit is pension income of an individual receiving it in their own right, while for a non-qualifying recipient the scheme administrator pays the 45% special lump sum death benefits charge instead. PCLS and UFPLS keep consuming allowance after 75.

An excess over the remaining LSDBA on a lump sum death benefit paid within the two-year window after a death before 75 is pension income of the recipient, whoever the recipient is (ITEPA 2003 ss.637H–637M). For an individual it is taxed at their own marginal rate, not the deceased member's, so the tool takes their other income as an input. The 45% special lump sum death benefits charge, paid by the scheme administrator, applies instead only where a taxable lump sum death benefit goes to a non-qualifying person (a company, or an individual acting as a trustee other than a bare trustee, a personal representative, a director, a partner or an LLP member) after death at 75 or over or, for most types, when paid after the two-year window following a death before 75. Paid late to a qualifying individual, the whole lump sum is their pension income even though death was before 75.

Fixed protection preserves a former lifetime-allowance ceiling as a higher LSDBA: FP2012 £1,800,000, FP2014 £1,500,000, FP2016 £1,250,000 — fixed nominal amounts that do not index. Individual Protection 2014 and 2016 set the LSDBA to the member's protected LTA (up to £1.5m for IP2014, £1.25m for IP2016). Primary Protection gives £1,800,000 uplifted by the certificate's enhancement factor. When the tax-free maximum of a pension commencement lump sum is tested, though, part of the Primary Protection rules is set aside, and which allowance then applies has not been settled for this tool, so the full workflow calculates such a lump sum only while it is no more than the standard £1,073,100 less the lump sum and death benefit allowance already used. Enhanced Protection gives an LSDBA equal to the value of the member's uncrystallised rights on 5 April 2024 (FA 2024 Sch 9 para 126(1)(c)) — a finite, member-specific figure, not an uncapped allowance. The tool above covers fixed protection 2012, 2014 and 2016 and individual protection 2014 and 2016. For Primary Protection, use the full workflow: it asks for the certificate’s protected lifetime allowance and enhancement factor, calculates serious ill-health lump sums and lump sum death benefits, calculates a pension commencement lump sum only within the limit above, and does not calculate an uncrystallised funds pension lump sum. It stops, rather than estimate, where it cannot count the member's benefits taken before 6 April 2024, for example when lump sum protection is also registered. The full workflow does not calculate any lump sum for a member with Enhanced Protection: work those out outside ParaplanAI.