Finance Bill 2023-24 – the removal of the lifetime allowance

Insight shared by:

Gateley Legal

The Finance Bill 2023-24 which contains the removal of the lifetime allowance (LTA) and other pensions tax measures was published on 29 November 2023, along with explanatory notes. The Bill received its first reading in the House of Commons on 27 November 2023 – we understand that it received its second reading the following day.

Many parts of the Bill reflect the draft legislation and associated materials that were published back in July (see our insight). However, there are some notable inclusions as regards the post-LTA abolition regime:

  • clarification as to what will happen with pension commencement lump sums (PCLS) (restrictions will still apply as to the amount that can be paid);
  • there will be a new form of authorised lump sum, a pension commencement excess lump sum (PCELS) (see discussion here); 
  • confirmation that the present tax treatment of uncrystallised defined contribution (DC) funds payable upon the death of a member before age 75 will be maintained (see discussion here); and
  • new provisions, including in respect the taxation of small lump sums, the treatment of overseas benefits, provision of information and transitional provisions.

The new tax regime – overview (see also our insight

LTA abolished

On and from 6 April 2024 there will no longer be a LTA which limits pension savings – pension benefits will just be subject to income tax (which they have since 6 April 2023 when the LTA charge was removed).

New lump sum allowance (£268,275) and new lump sum and death benefit allowance (£1.073m)

Instead of the LTA, there will be a new tax regime for lump sums and lump sum death benefits (LSDBs) through the introduction of two new allowances: a new ‘lump sum and death benefit allowance’ (LSDBA) of £1.073m (the current standard LTA amount), and a new ‘lump sum allowance’ (LSA) of £268,275 (the existing permitted maximum for a PCLS and uncrystallised funds pension lump sum (UFPLS) for somebody with a standard LTA). 

These two allowances are new maximum lump sum amounts above which marginal rate income tax will be applied in certain cases. There will be no requirement as there presently is to have available LTA to take a lump sum.

It is understood that: 

  • the LSA will be used up by payment of a PCLS and the non-taxable part of an UFPLS (the reference to a reduction also applying to a trivial commutation lump sum and a winding-up lump sum in the July draft legislation appears to have been removed from the Bill); and that 
  • the LSDBA will reduce through payment of a PCLS, the non-taxable parts of an UFPLS and a serious ill-health lump sum, and the non-taxable part of authorised lump sum death benefits (excluding a charity lump sum death benefit and a trivial commutation lump sum death benefit) – the draft July legislation was worded differently referring to authorised lump sums and authorised lump sum death benefits rather than referring to specific lump sums.

LTA charge removed on 6 April 2023

A precursor step in the LTA abolition was replacement of the LTA charge on and from 6 April 2023 with a charge to income tax at the individual’s marginal rate. The Finance (No. 2) Act 2023 provisions which introduced the LTA removal changes will be repealed because the Bill contains provisions that supersede them.

Existing BCEs removed and new relevant BCEs introduced

Removing the LTA means that the existing benefit crystallisation events (BCEs) will not be needed – BCEs are events such as payment of a pension which prompt a check as to the amount ‘crystallised’ and whether the benefit exceeds a member’s available LTA. 

However, there will need to be BCEs to cover checks against the payment of relevant lump sums and LSDBs so that they can be tested against the new lump sum allowances. These will be called relevant BCEs (RBCEs) under the new regime. The available new lump sum allowances will be reduced by the relevant amount of a RBCE. 

The Bill (also see the Government’s policy paper) clarifies the position in respect of several matters

Pension commencement lump sum and the new pension commencement excess lump sum

  • The PCLS (restricted to permitted maximum)

Amendments will be made to the Finance Act 2004 to ensure the “continued operation of permitted maximum and applicable amounts which limit the pension commencement lump sum.” 

Post-6 April 2024, a PCLS will continue to be paid tax-free but also continue to be restricted by a permitted maximum, this being the lowest of: (1) an amount calculated by reference to the level of pension; (2) the available LSA; and (3) the available LSDBA. Essentially, this means the standard PCLS will still be capped at £268,275. It will continue to be the case that a lump sum exceeding the permitted maximum will not constitute a PCLS.

  • A PCELS (new lump sum)

A new form of authorised lump sum is being created, the PCELS, which will be subject to income tax. The Bill’s explanatory notes explain that this will replace the “previous facility where pension schemes were permitted to pay a lifetime allowance excess lump sum when paying commencement lump sums”. (A LTA excess lump sum is a form of authorised lump sum payable where a member has exceeded the LTA. It will be removed as part of the LTA abolition measures.) 

A PCELS must meet certain conditions including that it: (1) is paid when no LSA is available; (2); is payable in connection with a pension; (3) does “not reduce the rate of payment of any pension to which the member has become (actually) entitled, or extinguish the member’s entitlement to payment of any such pension”; and (4) it does not exceed a permitted maximum calculation based on an applicable amount relating to the pension and the available LSDBA.

These changes to the PCLS framework mean that, contrary to what was thought might be the case from a reading of the July draft legislation, there is to be no significant extension of DC pension freedoms to defined benefit (DB) members (by allowing DB members to essentially take all their benefits as a PCLS). This aligns with the Government’s commentary that it did not intend to extend pension freedoms in this way. 

Small lump sums

The tax-free part of a trivial commutation lump sum, a winding up lump sum and a small lump sum will not be deducted from the new lump sum thresholds if there is threshold availability to take the sum.

DC benefits on death before age 75 (BCEs 5C and 5D)

The Government has confirmed that benefits from a DC member’s uncrystallised funds will still be able to be paid under flexi-access drawdown and through an annuity without a charge to income tax where the member dies before age 75. The Government was considering whether to impose a charge to income tax on such benefits but has decided against this.

Existing protections

Individuals with valid lump sum and LTA protections will maintain their rights to higher levels of tax-free lump sums and, where applicable, higher tax-free parts of lump sums subject to certain limited exceptions (for example, limiting the PCLS to the maximum that could have been provided on 5 April 2023 for those with enhanced protection with total lump sum rights on 6 April 2023 exceeding £375,000). Members with valid enhanced or fixed protection which was applied for before 15 March 2023 can accrue new benefits, join a scheme, or transfer without losing their protection.

Non-UK schemes

The Bill clarifies the position in respect of non-UK pension schemes – mirroring the position for UK schemes, available LTA will no longer be needed in respect of lump sums and LSDBs. 

Member payment charges will include marginal rate tax charges on lump sums and LSDBs which exceed the LSA or LSDBA where payments derive from funds that have received UK tax relief. 

There will also be a new ‘overseas transfer allowance’ for transfers to qualifying recognised overseas pension schemes – this will be the equivalent of the LSDBA, the same level as applied previously. 

An overseas transfer charge will apply where no exclusion is applicable (25% of transfer value) or where the transfer exceeds the available overseas transfer allowance (25% of the amount exceeding the available allowance).


There will be a new system for reporting events in relation to RBCEs which tie into the new lump sum allowances. Following an RBCE, the individual will receive a statement saying how much of the new allowances have been utilised by the event.


The Bill contains provisions for calculating the availability of the LSA and LSDBA where there has been a BCE before the new regime comes into effect and a RBCE afterwards – broadly, the reduction to be applied is based on a percentage of the member’s previously used LTA (25% except in the case of certain serious ill-health and lump sum death benefit payments relating to pre-6 April 2024). If a member has previously exceeded their LTA, no LSA or LSDBA is available. 

Alternatively, a member with prior tax-free amount records can apply to a scheme for a transitional tax-free amount certificate confirming that the scheme is satisfied with an individual’s lump sum and LSDB transitional tax-free amounts.

Scheme administrators must provide a statement before the end of the tax year 2024-25 to somebody who has taken a BCE before 6 April 2024 but does not have a pension in payment before end of 2024-25 tax year.

The Government has the power until 5 April 2026 to make primary legislation through statutory instruments (secondary legislation) to cater for transitional matters.


There is not much time until the LTA removal is in place. Schemes should check how they will be impacted by the LTA abolition (for example, pension accrual being capped by reference to the LTA) and other pensions tax changes and communicate with members as necessary if they have not done so already. Scheme administrators will also need to implement changes to their systems to account for the new regime. Quite how long a LTA abolition regime would continue under a Labour Government is uncertain – Labour indicated that it would reverse the LTA removal if it wins the next election but whether it would decide to press ahead with this given the likely inherent complexities of reversal is another matter. 

Would you like to receive our pensions updates directly to your inbox? 

For more information regarding the latest developments in pensions law, please contact our experts listed below or visit our pensions regulatory support page for more information on the services that we offer. If you would like to receive these updates directly to your inbox, please subscribe below.

Visit our pensions regulatory support page Subscribe for pensions updates via email

Gateley Plc is authorised and regulated by the SRA (Solicitors' Regulation Authority). Please visit the SRA website for details of the professional conduct rules which Gateley Legal must comply with.

Got a question? Get in touch.