Learn about how the lifetime allowance will affect you when you access your pension.

Definitions

What is the lifetime allowance?

The lifetime allowance is the maximum value of pension benefits you can access without incurring a charge. It is a way of limiting the overall value of the pension tax advantages you can benefit from.

What is a Benefit Crystallisation Event (BCE)?

Your pension benefits are tested against the lifetime allowance when certain actions or events take place. These are called Benefit Crystallisation Events, or BCEs.

Rules

How much is the lifetime allowance?

The standard lifetime allowance is £1,073,100 for the 2023/24 tax year. However, there are several forms of lifetime allowance protection which may give an individual a higher lifetime allowance. Please see our separate lifetime allowance protection fact sheets for further information.

How does the lifetime allowance work?

Each time you have a BCE, the value of the benefits being crystallised is tested against your remaining lifetime allowance. The amount of lifetime allowance you use at each event, and therefore the amount you have left for future events, is expressed as a percentage. This makes it easier to account for changes in the lifetime allowance if you have BCEs in different tax years.

When do BCEs occur?

The most common BCEs occur when:

• You access your pension benefits
• You turn age 75
• You die before age 75 with benefits which haven’t yet been tested.

There are also a couple of more unusual BCEs, such as transferring your pension to an overseas pension scheme.

What happens when I run out of lifetime allowance?

If you have a BCE which takes you over the lifetime allowance, or have a BCE when you have no lifetime allowance remaining, then anything taken in excess of your lifetime allowance will be taxed at your marginal income tax rate.

You should also be aware that once you have used up your lifetime allowance, you can no longer take tax free cash (also known as PCLS). You will also no longer be able to access your pension benefits via an uncrystallised funds pension lump sum (UFPLS).

Who completes the lifetime allowance test and pays the charge?

There are different processes for BCEs which take place during your lifetime and ones which occur on your death.

For BCEs which take place during your lifetime, your pension provider will complete the test against the lifetime allowance. The provider will also ask you for enough information about your previous BCEs to work out whether you have exceeded the lifetime allowance. If you have, the provider will calculate any tax charges and pay this to HMRC directly before processing the remaining pension benefits. Whether or not you exceed the lifetime allowance, your provider will tell you how much of the lifetime allowance was used by the BCE. You’ll then have this information in case another one of your pension providers needs it for another BCE.

For BCEs after you have died, your provider will contact your personal representatives to confirm your remaining lifetime allowance. If the value of your funds exceeds your remaining lifetime allowance then your provider with arrange for any related tax charges to be paid prior to making payment to your beneficiaries.