What is the Lump Sum and Death Benefit Allowance?
The lump sum and death benefit allowance caps the total tax-free lump sums payable from your pensions both during your life and on your death at £1,073,100. It matters most for someone who dies before 75, because that is when death benefits are otherwise tax-free — the allowance is what puts a ceiling on it.
- The figure: £1,073,100, the old lifetime allowance carried forward under a new name.
- What it covers: tax-free lump sums in life plus tax-free lump sum death benefits.
- Before 75: death benefits are tax-free up to the allowance; above it they are taxed as the recipient's income.
- After 75: lump sum death benefits are taxable at the recipient's marginal rate regardless of the allowance.
01 One allowance covering two moments
The lump sum and death benefit allowance is a single £1,073,100 ceiling that spans your lifetime and your death. Tax-free lump sums taken while you are alive count against it, and so do tax-free lump sum death benefits paid afterwards — which means the cash you took at 60 reduces what your beneficiaries can receive free of tax at 74.
It sits alongside the smaller lump sum allowance of £268,275 rather than replacing it. A pension commencement lump sum is tested against both: it uses the smaller allowance and the larger one at the same time. Serious ill-health lump sums are tested against the LSDBA only, which is what makes them a route to more than £268,275 tax free in the specific circumstances where they apply.
Both figures descend from the £1,073,100 lifetime allowance abolished in April 2024, and neither is indexed. What was one threshold is now two with different jobs.
Source: Lifetime allowance and the allowances that replaced it
02 Why the age at death changes everything
Death before 75 is the case the allowance exists for. Lump sum death benefits from uncrystallised funds and from drawdown are paid free of Income Tax up to the allowance, and taxed as the recipient's income above it. For a pot of £900,000 belonging to someone who already took £268,275 of tax-free cash, the tax-free headroom on death is under £805,000, and the balance is taxable in the beneficiary's hands.
Death at or after 75 removes the question. Lump sum death benefits are then taxed at the recipient's marginal rate whatever the allowance says, so the LSDBA stops binding and the relevant planning variable becomes which beneficiary receives it and in which tax year.
Beneficiary drawdown sits outside the lump sum test entirely, because it is income rather than a lump sum. That distinction is the single most useful piece of estate planning in the pension rules: keeping the death benefit as drawdown rather than taking it as cash can move a large payment out of the allowance altogether.
Shows: the tax-free headroom left for lump sum death benefits after the tax-free cash you have already taken. Ignores: death at or after 75, beneficiary drawdown, Inheritance Tax, and any protection that raises your allowance.
On the defaults above, the worked example shows £804,825. £95,175 of the pot would fall outside the allowance and be taxed as the recipient's income.
03 What to do about it
Keep the expression of wish current, because it is what lets trustees pay a beneficiary drawdown rather than a lump sum, and it is the cheapest document in the whole estate. A form naming a former spouse is not a technicality; it is the difference between a taxable lump sum and a flexible inherited pension.
Then know the running total. Providers issue allowance statements when they make relevant payments, and the beneficiaries will need them. Where the pot is large enough for the LSDBA to bind, the interaction with the rest of the estate is worth taking advice on rather than working out from a guidance page — this is one of the areas where the rules changed recently and the detail carries real money.
Source: Inheritance Tax
This is the allowance nobody meets until the worst possible moment, and the thing that decides it is a form. Beneficiary drawdown sits outside the lump sum test; a lump sum sits inside it. Which one the trustees can pay depends on your expression of wish and on the scheme's rules, and both are worth checking this year rather than at 74. I would also warn against the instinct to take tax-free cash early 'while you can' — every pound of it reduces the headroom your family has on the other side, and that trade is invisible until it is made.
FAQ
How is the LSDBA different from the lump sum allowance?
The lump sum allowance caps tax-free cash in your lifetime at £268,275. The lump sum and death benefit allowance caps tax-free lump sums across your life and your death together at £1,073,100. A pension commencement lump sum is tested against both at once.
Does beneficiary drawdown count against the allowance?
No. The allowance tests lump sums, so a death benefit paid as beneficiary drawdown falls outside it. Whether that route is available depends on the scheme's rules and on your expression of wish, which is why keeping the form current matters.
What happens if death occurs at 75 or later?
Lump sum death benefits are taxed at the recipient's marginal Income Tax rate regardless of the allowance, so the LSDBA stops being the binding constraint. Planning then turns on who receives the money and in which tax year they take it.
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
- Inheritance Tax · GOV.UK · 2025The nil-rate band, the 40% rate and what forms part of the estate.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.