Changes to Pensions
Understanding your Lump Sum Allowance and Lump Sum and Death Benefit Allowance
From 6 April 2024 two new allowances, the lump sum allowance and the lump sum and death benefit allowance, apply to most lump sums paid from a pension scheme. These limits replace the lifetime allowance which applied prior to 6 April 2024.
As with the lifetime allowance it is likely that these new limits will only affect a relatively small number of pension savers. However, if you are concerned about exceeding these limits on lump sums, we would recommend that you seek advice from a financial advisor.
The Lump Sum Allowance
This is the total amount you can take tax-free in your lifetime:
- as a pension commencement lump sums (PCLS),
- from any uncrystallised funds pension lump sums (UFPLS), and
- as a stand-alone lump sum
For most people the lump sum allowance will be £268,275 but if you have applied for lifetime allowance protection you will be entitled to a higher lump sum allowance based, in most cases, on 25% of your protected lifetime allowance.
The Lump Sum and Death Benefit Allowance
This is the total amount of lump sums that can be paid tax-free to you during your lifetime, and to your beneficiaries following your death. The following payments count towards your lump sum and death benefit allowance:
- Pension commencement lump sums (PCLS)
- The tax-free element of all uncrystallised funds pension lump sums (UFPLS)
- Stand-alone lump sums
- Serious ill health lump sums
- Lump sum death benefits
For most people the lump sum and death benefit allowance will be £1,073,100 but if you’ve applied for lifetime allowance protection, you’ll be entitled to a higher lump sum allowance based on your protected lifetime allowance.
Taxation of lump sums
Once either your lump sum allowance or lump sum and death benefit allowance have been reduced to nil;
- you cannot receive any further PCLS payments.
- the full amount of any UFPLS taken will be subject to income tax at your marginal rate.
- any stand-alone lump sum paid will be subject to income tax at your marginal rate.
If your lump sum and death benefit allowance is nil, then;
- any serious ill health lump sum is taxable at your marginal rate of income tax, and
- any lump sum death benefit paid to your beneficiaries is taxable at their marginal rate of income tax.
This information is based on our understanding of current taxation law and HMRC practice, which may change.
Transitional Tax-Free Amount Certificate
Your lump sum allowance and lump sum and death benefit allowance will be reduced by pension and lump sums that you have previously received prior to 6 April 2024. By default;
- your lump sum allowance is reduced by 25% of all benefit crystallisation events that have occurred prior to 6 April 2024, and
- your lump sum and death benefit allowance is reduced by;
- 100% of any serious ill health lump sums paid to you,
- 100% in respect of any lump sum death benefits, and
- 25% of all other benefit crystallisation events
A transitional tax-free amount certificate allows your previous lump sums received to be more accurately measured and may mean that your lump sum allowance and/or lump sum and death benefit allowance is higher than the default method.
You can apply for a transitional tax-free amount certificate from any scheme you are currently a member of, but your application must be made before you first take a lump sum from any pension scheme. As part of applying for a transitional tax-free amount certificate you will need to provide evidence of the benefits that you received prior to 6 April 2024.
Enhancements to your allowances
Prior to 6 April 2024, it was possible to apply for an increased lifetime allowance when the lifetime allowance was introduced and when it was subsequently reduced. From 6 April 2024, rather the providing an enhanced lifetime allowance, these protections will increase your lump sum allowance and lump sum and death benefit allowance. The table below confirms the allowances for each type of protection.
| Type of Protection | Lump sum allowance | Lump sum and death benefit allowance |
|---|---|---|
| Fixed Protection | £450,000 | £1,800,000 |
| Fixed Protection 2014 | £375,000 | £1,500,000 |
| Fixed Protection 2016 | £312,500 | £1,250,000 |
| Individual Protection 2014 | 25% of the protected amount |
100% of the protected amount |
| Individual Protection 2016 | 25% of the protected amount | 100% of the protected amount |
| Primary Protection | Individuals without lump sum protection – £375,000 Individuals with lump sum protection – The lump sum on the certificate multiplied by 1.2 Less In respect of any PCLS where entitlement arose before 6 April 2012 the amount paid revalued by 1.8/the standard lifetime allowance at the time of payment Less Where the entitlement to the PCLS arose after 5 April 2012 the amount paid. |
£1,800,000 multiplied by the individual’s primary protection factor |
| Enhanced Protection | Amount of PCLS or stand-alone lump sum(SALS) payable on 5 April 2023 less any PCLS or SALS paid since that date. |
The value of uncrystallised funds on 5 April 2024 |
We’re updating relevant communications and our website to reflect some changes that we’re making to our ISAs. Until this is complete, you may still see some previous wording. The changes that we’re making follow on from updates to the ISA rules announced by the Chancellor of the Exchequer in his Autumn statement and come into effect on 6 April 2024.
None of these changes affect your charges or the investments in your ISA.
Allowing subscriptions to multiple ISAs of the same type
We no longer need you to confirm that you haven’t contributed to another stocks and shares ISA in this tax year. You must, of course, still remain within the overall ISA subscription limit of £20,000.
If you see the following wording (or similar wording) in our legal declaration(s), you can ignore this as it no longer applies to our ISAs.
“I have not subscribed, and will not subscribe, to another stocks and shares ISA in the same tax year that I subscribe to this stocks and shares ISA.”
For example, you might see this when making an ISA application or making a payment to your ISA.
Allowing partial transfers of current year ISA subscriptions
You can transfer some or all of your existing ISA savings (from previous and current tax years) into, or out of, our ISAs. Transferring won’t affect your ISA allowance although current year subscriptions will still count towards it. You can transfer as many ISAs as you want to us.
Previously, if you were transferring any current tax year ISA subscriptions, you had to transfer 100% of the current tax year amount. This was to prevent you from investing into multiple ISAs of the same type in a current tax year. As before 6 April 2024, you were only allowed to invest in one of each ISA type in a tax year, for example one stocks and shares ISA.