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Tax Controls on Pensions - Lump Sum and Death Benefit Allowance

The government limits the total amount of tax-free lump sums and death benefit lump sums that can be paid in respect of someone’s pension benefits to £1,073,100. This is known as the Lump Sum and Death Benefit Allowance (LSDBA).

There is also a limit of £268,275 that someone can receive in lump sums from all their pensions. This is known as the Lump Sum Allowance (LSA).

This page provides more information about the LSDBA.

Find out more about the LSA.

Paying an LGPS death grant

A death grant is a one-off payment that could be made to beneficiaries when an LGPS member dies. Eligibility for a death grant in the LGPS depends on the member’s status in the scheme. Find out more about what happens if the member's status is:

Tax on death grants

An LGPS death grant will usually be paid tax-free as long as:

  • the member was under age 75
  • the death grant is paid within 2 years of the death
  • the member has not exceeded their LSDBA

We have full discretion over who the death benefit is paid to, which means it sits outside of the member’s estate and is not subject to inheritance tax.

Although it is rare, if a member was over age 75 on the date of death, or the death grant wasn’t made within 2 years of the death, it will be subject to income tax.

If the death grant is taxable and paid to a non-qualifying person a special lump sum death benefit charge of 45% will also apply. More information can be found on the HMRC website.

If the LSDBA is exceeded, a tax charge will be payable on the excess.

When a member dies, the person dealing with their financial affairs is responsible for checking that the member has not exceeded the LSDBA. If exceeded, they will need to report this to HMRC and pay the tax charge due. For more information, see the HMRC guide.

Payments that count towards the LSDBA

The following payments count towards the LSDBA:

  • Pension Commencement Lump Sums (PCLS) – This is a tax-free one-off amount (normally up to 25% of the pension pot) that most people can access when they start receiving a pension
  • Uncrystallised Funds Pension Lump Sums (UFPLS) – These are lump sums you may have drawn down from a money purchase arrangement. Only the tax-free element reduces the LSDBA
  • Stand Alone Lump Sums (SALS) – This is when all of your benefits from a pension scheme are paid as a single lump sum
  • Serious Ill-Health Lump Sum (SIHLS) – This a lump sum payment made when someone has less than a year to live
  • A relevant lump sum death benefit – This is a tax-free lump sum paid upon death to a beneficiary after 6 April 2024. Any death benefits paid before this date will not use up LSDBA

A charity lump sum death benefit and a trivial commutation lump sum benefit will not count towards the LSDBA.

Working out the LSDBA

When a tax-free lump sum death benefit is paid in respect of an LGPS pension, we will write to the beneficiaries to confirm how much LSDBA the payment has used up. The personal representative of the member can then add this together with other payments which count towards the LSDBA.

The LSDBA used is worked out differently depending on whether the payment was made before or after 6 April 2024. For working out payments made after this date, the tax-free amounts are simply added together.

For example, the following payments have been made in respect of someone’s pension after 6 April 2024:

LGPS lump sum at retirement (PCLS) - £32,000

Tax-free lump sum drawn down from a money purchase scheme - £22,000

LGPS death grant paid: £63,000

Tax-free death benefit from money purchase scheme: £71,500

The total of these payments is £188,500

As this is less than the £1,073,100 LSDBA available, there is no tax charge to pay.

Payments made before 6 April 2024

Before 6 April 2024, the government placed a limit on how much you could build up in pension savings before you had to pay an additional tax-charge. This limit was known as the Lifetime Allowance.

The amount of LSDBA used before 6 April 2024 is worked out differently. Instead of deducting the actual amount of lump sum from the LSDBA, you would deduct 25% of the lifetime allowance used before 6 April 2024 on tax-free retirement lump sums and 100% of any lifetime allowance used on any SIHLs (paid before age 75).

For example, on 6 April 2024, a member had used up 35% of their lifetime allowance on tax-free retirement lumps sums. They also used up 10% of the lifetime allowance on a SIHL. A death grant of £35,000 was paid in respect of their pension on 15 April 2024.

We can work out how much LSDBA was used up by these payments as:

Retirement lump sums:

35% of the Lifetime Allowance is £375,585
25% of this is £93,896.25


10% of the Lifetime Allowance is £107,310
100% of this is used towards the calculation.

We can then add these two amounts to the death benefit paid on 15 April 2024:

£93,896.25 + £107,310 ­+ £35,000 = £236,206.25

We can then deduct this from the LSDBA to work out the amount remaining:

£1,073,100 (LSDBA) - £236,206.25= £836,893.75 remaining LSDBA.

As this is within the limit, there is no tax charge to pay.

Transitional protection

If a member took less than 25% of the lifetime allowance as a tax-free retirement lump sum before 6 April 2024, they or their personal representatives can apply for a Transitional Tax-Free Amount Certificate. This will allow you to use the actual tax-free amount in your calculation of the LSDBA, as well as the LSA.

Find more information about transitional protection including a calculation example and details on how to apply.

Applying Lifetime Allowance protections

The Lifetime Allowance changed several times before it was abolished on 6 April 2024. Each time it changed those who had previously made retirement plans based on the old limit were able to apply for protection. Some types of protection entitle the holder to a higher Lifetime Allowance. These protections can still be used to increase the LSDBA.

Find more about the various types of protection and their effect on the individual’s LSDBA.