Maximum Tax-Free Cash Options

Maximum tax-free cash options following the removal of the Lifetime Allowance and introduction of the Lump Sum Allowance

The new Lump Sum Allowance (LSA) is to be introduced from 6 April 2024. From this date the maximum amount of tax-free payments that can be paid during an individual’s lifetime will be £268,275 unless the member has a higher protected amount. Tax-free payments will include pension commencement lump sums (PCLS) and the tax-free portion of any uncrystallised fund pension lump sum payments (UFPLS) but will not include the tax-free portion of any trivial commutation, winding-up or small pots lump sums.

So where an individual has protection, how will this affect their maximum LSA?

Enhanced protection

• Where protected tax-free rights apply, the allowance will be the maximum lump sum amount as at 5 April 2023.
• Where there is no protected cash then the figure is £375,000 less previously taken amounts.

Primary protection

• Where protected tax-free rights apply, the figure will be the A-Day value increased by 20% less previously taken amounts.
• Where there is no protected cash then the figure is £375,000 less previously taken amounts.

Scheme specific tax-free cash protection

• (05/04/06 TFC x £1.8M/£1.5M) + 25% x [retirement fund – (05/04/06 fund x 0.7154)].
• 0.7154 is derived from £1.0731m/£1.5m.
• This improves the position for those with fixed or individual protection where the use of the protected LTA had a negative impact on the maximum figure.

Accounting for ‘previously taken amounts’

Where benefits have been crystallised prior to 6 April 2024 then 25% of these crystallisations, or the amount certified in a transitional tax-free cash certificate provided before the first relevant benefit crystallisation event (RBCE), must be deducted to give the remaining LSA. If the individual has no remaining lifetime allowance (LTA) then they will not have any LSA and so any payments taken will be taxed at their marginal rate.

For those who have taken benefits as pension only with no PCLS being taken, then they can have a full LSA available if they have not fully used their LTA and they obtain a transitional tax-free cash certificate showing that no PCLS has been taken to date. So a tax-free payment up to their maximum LSA can now be taken if there are sufficient remaining pension savings.

Important note

Please note that the above information is based on our current understanding and should not be relied upon for individual client tax reporting.

 

1. Introduction
2. TOL Recent Enhancements 
3. Development Summary for 2023
4. New Aggregated Second Dealing Point
5. Succession Planning Update
6. Share Class Conversion
7. Transact – BlackRock MPS Update
8. Maximum Tax-Free Cash Options
9. Fund Changes
10. Interest on Cash Deposits
11. Transact Events 2024