What is the Lump Sum Allowance and how is it used up?
The lump sum allowance caps the tax-free lump sums you can take from pensions at £268,275 across your lifetime. It replaced the lifetime allowance's lump sum limb in April 2024, it is used up by more kinds of payment than most people realise, and once used it does not refresh.
- The figure: £268,275, unchanged since it replaced the lifetime allowance limb in April 2024.
- What uses it: pension commencement lump sums and the tax-free 25% of each UFPLS.
- What does not: taxable pension income, small pots lump sums, and serious ill-health payments use the LSDBA instead.
- Your job: the running total is yours to track; no single provider can see it.
01 What it replaced and what it kept
The lump sum allowance took over the one job the lifetime allowance still needed to do after April 2024: capping tax-free cash. The lifetime allowance itself capped total pension value and taxed the excess, and that charge is gone entirely. What survived is the £268,275 limit on tax-free lump sums, set at exactly 25% of the old £1,073,100 threshold so that nothing changed in practice on the day.
The renaming mattered more than the arithmetic. Under the old regime the tax-free cash limit moved whenever the lifetime allowance moved; under the new one it is a standalone cash figure with no index and no linkage. It has not risen since it was introduced, and nothing in the legislation requires it to.
Anyone with pensions well under a million pounds will never meet it. Anyone heading past that will meet it, and the relief that built the pot does not change the fact that the tax-free share of it is capped in cash.
Source: Lifetime allowance and the allowances that replaced it
02 What consumes the allowance
Two payments use the lump sum allowance up. A pension commencement lump sum uses it pound for pound. And the tax-free quarter of an uncrystallised funds pension lump sum uses it too — so someone taking £40,000 as an UFPLS uses £10,000 of allowance and pays tax on the other £30,000.
Several payments do not. Taxable drawdown income does not touch it. A small pots lump sum under the £10,000 rule does not. A serious ill-health lump sum is tested against the larger lump sum and death benefit allowance instead. Trivial commutation of a small defined benefit pension does not use it either.
The practical consequence is that the allowance is consumed by decisions rather than by pot size. Two people with identical pensions can end up in completely different positions depending on whether they took cash or income first.
03 Tracking it, because nobody else does
Every provider knows what it has paid you and none knows what the others have paid, so the running total against £268,275 is yours to keep. Providers are required to give you a statement of the allowance used when they make a relevant payment; those statements are the record, and losing them makes the next crystallisation harder than it needs to be.
If you hold a transitional protection, your personal allowance is higher than £268,275 and you have to evidence it to each scheme separately. Providers apply the standard figure by default, so an unevidenced protection is an unused protection — and a lump sum wrongly taxed as income is not straightforward to unwind.
Shows: how much of your lump sum allowance a set of withdrawals uses, and what is left for later. Ignores: protections above the standard allowance, small pots and trivial commutation payments, and Income Tax on the taxable portions.
On the defaults above, the worked example shows £178,275. £90,000 of allowance used — the UFPLS contributes £10,000 of that, not its full value.
I would keep the allowance statements in the same folder as the pension statements, because the number that matters is a running total across providers and there is no system that maintains it for you. The specific thing people get wrong is the UFPLS: they see a payment that is mostly taxable and assume it leaves the tax-free allowance alone. It does not — a quarter of every UFPLS is tax-free cash and is charged against the £268,275 like any other. Take enough of them and you can reach retirement having quietly spent an allowance you thought you were saving.
FAQ
Is the lump sum allowance the same as the old lifetime allowance?
No. The lifetime allowance capped total pension value and taxed the excess; that charge was abolished in April 2024. The lump sum allowance caps only tax-free lump sums, at £268,275 — which was 25% of the old threshold, so the tax-free limit itself did not move.
Does drawdown income use up the allowance?
No. Taxable income from flexi-access drawdown does not touch the lump sum allowance. Only tax-free payments do: the pension commencement lump sum, and the tax-free quarter of any uncrystallised funds pension lump sum.
Will the £268,275 figure rise with inflation?
Nothing in the legislation indexes it, and it has not moved since April 2024. Treating it as a fixed cash figure for planning purposes is the safe assumption, which means the tax-free share of a growing pot falls in real terms every year.
Sources
Regulator references
- Lifetime allowance and the allowances that replaced it · GOV.UK · 2025The lump sum allowance rules that replaced the lifetime allowance from April 2024.Last verified: 2026-09-07
- Tax on your private pension contributions · GOV.UK · 2025The relief, allowance and charge framework the whole post sits inside.Last verified: 2026-09-07
- Pension schemes: protect your lifetime allowance · HM Revenue and Customs · 2025Which protections survive the 2024 abolition and what they still buy.Last verified: 2026-09-07
Calculator unit tests · the assertions this page's worked example is checked against, and their last result
Changelog
- 2026-09-07 — initial publish (new format)
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Jordan Reeves
Founder of Talk Through Wealth. A software engineer for over a decade before turning to retirement planning, Jordan built the projection engine after watching family members get fragmented, country-by-country advice that never reconciled. He writes about retirement the way the engine computes it: month-by-month, lifetime-long, and skeptical of any rule of thumb that hasn't been run through the math.