The Lump Sum Allowance: how £268,275 actually gets consumed

The Lifetime Allowance was abolished from 6 April 2024 and replaced by two lump-sum ceilings. The Lump Sum Allowance caps the tax-free cash a member can draw across their lifetime: £268,275 as standard — 25% of the final £1,073,100 LTA, frozen at that figure. An ordinary pension commencement lump sum normally consumes it pound for pound, as does the tax-free element of an UFPLS. Scheme-specific protected lump sums have a separate LSA deduction rule, explained below. Income never consumes it: drawdown, annuity purchase and scheme pension leave the LSA untouched, which is the structural difference from the old regime.

A worked excess

Take a client with no protection who's drawn £100,000 of tax-free cash since April 2024 and now crystallises enough to support a £200,000 PCLS.

The excess is not tax-free cash. If the scheme's rules allow, it can be paid as a pension commencement excess lump sum, taxed as the member's pension income at their marginal rate in the year of payment (PTM171000); otherwise it stays invested to be drawn as income. There's no 55% charge anywhere in the new framework: in the rest of the UK the excess costs 20%, 40% or 45%, and a Scottish taxpayer pays Scottish rates of up to 48%. So the year in which a crystallisation falls changes the tax on any excess, in a way it did not under the flat LTA charges.

PTM171000 · FA 2024 Sch 9 — figures engine-computed against the 2026/27 config

Protection can change the ceiling and the deduction

Fixed Protection 2016 holds the LSA at £312,500. Individual Protection 2014 and 2016 set it to 25% of the member's protected LTA (capped at £1.5m and £1.25m respectively) — though from 6 April 2024 IP2016 only applies where the protected value is above £1,073,100; at or below that, the standard allowances apply. Enhanced and Primary Protection give a £375,000 lump sum allowance unless the member also holds lump sum protection, in which case the protected lump sum applies instead (PTM174400 / PTM174500). Scheme-specific protected tax-free cash has a separate rule: Finance Act 2004 Schedule 36 paragraph 34A can make the LSA deduction smaller than the tax-free amount paid. The full tax-free amount still uses the LSDBA (ITEPA 2003 s.637S). Check the protection and its deduction rule before using the ordinary pound-for-pound example above.

The common error: the missing transitional deduction

Files go wrong at the opening balance, not the arithmetic. A member who crystallised benefits before April 2024 doesn't start with a clean £268,275: the default transitional rule deducts 25% of the LTA percentage they used — and that default assumes maximum tax-free cash was taken, which is frequently false. Before relying on the default, test whether a Transitional Tax-Free Amount Certificate recovers headroom — that is the subject of the TTFAC article. For a quick position check on your own figures, the LSA calculator runs the same engine shown here.

PTM176100 (protections) · PTM174400 / PTM174500 (enhanced and primary protection) · PTM176510 (individual protection) · PTM174100 (transitional deductions)