Taking higher tax-free lump sums with lifetimeprotected allowance protectionallowances

FromGenerally, 6you Aprilcan 2023,take thea amount of tax-free lump sum youfrom canyour takepension isof 25% of your pension pot, up to a maximum ofacross 25%all your arrangements of the£268,275. standardThis lifetimeis your lump sum allowance.

Under Thecertain currentcircumstances, lifetimeeither:

• you allowancecan also receive a serious ill-health lump sum
• your beneficiaries can receive a lump sum death benefit

Both are tax-free up to a maximum of £1,073,100. This is your lump sum and death benefit allowance.

Any tax-free lump sums and lump sum death benefits will count towards your overall limit of £1,073,100.

If you holdhave certainprotected lifetimeallowances, allowance protections, the amount of tax-free lump sum you can take mayand beyour higher.overall Thetax-free amountlimit youmay arebe entitledhigher. toYour entitlement amount depends on the lifetimeprotection allowanceand/or protectionenhancement that you hold.

IfYou youmay have a protection cessation event that means that you are no longer entitled to aprotected lifetimeallowances. allowanceIn protection,this case, you will also no longer behave entitledentitlement to a higher tax-free lump sum.sum and higher lump sum and lump sum death benefit allowance.

You can only take a maximum of 25% of your pension pot, even if you have a higher amount of tax-free lump sum available.

Enhanced protection

Lump sum allowance

If you hold valid enhanced protection with lump sum protection, you can retain the lump sum protection that is noted on your protection certificate. This means that you are entitled to a tax-free lump sum at the value of the protected percentage of your pension pots on 5 April 2023.

For example, if you hold enhanced protection with lump sum protection of 40% and the value of your pension pots on 5 April 2023 is £1,600,000, you are entitled to a tax-free lump sum of up to £640,000.

Any contributions made after 5 April 2023 will not be included in the calculation for your increased tax-free lump sum.

If you hold valid enhanced protection, but do not hold lump sum protection with it, you are entitled to a tax-free lump sum of up to £375,000.

Lump sum and lump sum death benefit allowance

You may hold valid enhanced protection. If so, you’ll have an increase in your successfullump applicationsums wasand receivedlump bysum HMRCdeath benefits allowance (the overall limit). The increase is to the value of your uncrystallised pension rights on 5 April 2024.

Conditions

If we receive your successful application:

• before 15 March 2023,2023 — then from 6 April 2023, you can continue to contribute to your pension schemes withoutand losingyou yourwon’t enhancedlose protection.

  If your successfulenhanced application was received by HMRC protection

• on or after 15 March 2023,2023 — you’ll still need to meet certain conditions for the protection to be valid.
  valid

Primary protection

Lump sum allowance

IfYou youmay hold valid primary protection with lump sum protection,protection. youIf continueso, toyou’re be protected at the value of the lump sum protection stated on your protection certificate.

You may hold valid primary protection without lump sum protection. If so, you’ll have protection of your lump sum allowance at 25% of your pension pot, up to a maximum of £375,000.

Lump sum and lump sum death benefit allowance

You may hold valid primary protection. If so, your lump sum and lump sum death benefit allowance is the lesser of the value of your pension rights on 5 April 2006 and £1.5 million.

Pension sharing orders

If you have a pension debit applied from a pension sharing order that results in value of your pension pot going below £1.5 million, your increased tax-free lump sum will revert to 25% of the standard lifetime allowance.

Fixed protections

If you hold valid:

• fixed protection, you are entitled to a tax-free lump sum of up to £450,000
• fixed protection 2014, you are entitled to a tax-free lump sum of up to £375,000
• fixed protection 2016, you are entitled to a tax-free lump sum of up to £312,500

Lump sum and lump sum death benefit allowance

If youryou successfulhold applicationvalid:

• fixed wasprotection, receivedyou byare HMRCentitled to a lump sum and death benefit allowance of £1.8 million
• fixed protection 2014, you are entitled to a lump sum and death benefit allowance of £1.5 million
• fixed protection 2016, you are entitled to a lump sum and death benefit allowance of £1.25 million

Conditions

If we receive your successful application:

• before 15 March 2023,2023 — then from 6 April 2023, you can continue to contribute to your pension schemes without losing your fixed protection.

  If your successful application was received by HMRC protection

• on or after 15 March 2023,2023 — you’ll still need to meet certain conditions for the protection to be valid.
  valid

Individual protections

If you hold valid individual protection 2014, you applied for your lifetime allowance to be protected at either:the lower of:

• the lowervalue of all of your pension pots on the 5 April 2014
• £1,500,000

If you hold valid individual protection 2016, you applied for your lifetime allowance to be protected at the lower of:

• the value of all of your pension pots on the 5 April 20142016
• £1,500,000£1,250,000

Lump sum allowance

YouIf you hold individual protection 2014, you will be entitled to a tax-free lump sum of the lower of:

• 25% of the value of all your protectedpension lifetimepots allowance.
  on 5 April 2014 (previously known as your protected amount)
• £375,000

For example, if youthe holdvalue individualof protectionall your pension pots on 5 April 2014 atwas £1,400,000, you’ll have an increased tax-free lump sum of £350,000.

IfYou youmay have continued to contribute to your pension schemes from 6 April 2014,2014. theseThese contributions willare not be counted towards the amount of tax-free lump sum youyou’re are entitled to.

If you hold valid individual protection 2016, you appliedwill forbe yourentitled lifetimeto allowancea totax-free belump protectedsum atof the lower of:

• 25% of the value of all of your pension pots on 5 April 2016 (previously known as your protected amount)
• £312,500

For example, if the value of all your pension pots on 5 April 2016 orwas £1,250,000.£1,300,000, you’ll have an increased tax-free lump sum of £312,500.

You may have continued to contribute to you pension schemes from 6 April 2016. These contributions will benot count towards the amount of tax-free lump sum you’re entitled to.

Lump sum and lump sum death benefit allowance

If you hold individual protection 2014

You’re entitled to a tax-freelump sum and lump sum ofdeath 25%benefit ofallowance. This is equal to your protected lifetimeamount allowancestated oron 25%your ofprotection certificate. This is the standardvalue lifetimeof allowance,your whicheverpension ispots higher.on 5 April 2014, to a maximum of £1,500,000. Any contributions made after this date do not increase your entitlement.

If you havehold individual protection 2016

You’re entitled to a lump sum and lump sum death benefits allowance. This is equal to your protected amount stated on your protection certificate. This is the value of your pension debitpots on 5 April 2016, to a maximum of £1,250,000. Any contributions made after this date do not increase your entitlement.

Pension debits applied from pension sharing orders

If you have a pension sharingdebit orderapplied that results in the value of your pension pot falling below the minimum value required for the protection, your increased tax-free lump sum will revert to 25% of your pension pot, up to the standardmaximum lifetimeof allowance.£268,275. Your lump sum and death benefit allowance will revert to £1,073,100.

ApplyingEnhancement forfactor

If lifetimeyou hold a valid enhancement factor that is valid on or before 5 April 2024, you may have entitlement to higher allowances.

You may have an enhancement factor from pre-commencement pension credit rights. In this case, your lump sum allowance will be 25% of your pension pot, up to a maximum of £375,000.

You may hold one or more enhancement that is from:

• pre-commencement credit rights
• Pension Credit rights from previously crystallised rights
• non-residency
• transfers from a recognised overseas pension scheme

If so, your lump sum and death benefit allowance will be equal to £1,073,100 plus the value of your enhancement factor against £1,073,100.

For example, if you have an enhancement factor of 0.15, your lump sum and death benefit allowance will be £1,234,065. This is because the factor of 0.15 against £1,073,000 is £160,095. This value added on to £1,073,100 equals £1,234,065.

You may hold a protection that means you have a higher lump sum and death benefit allowance. If so, your overall allowance will be both your:

• protected allowance
• the value of your enhancement factor against your protected allowance

For example, if you hold Individual Protection 2014 at £1,300,000 and a factor of 0.23, your overall lump sums and death benefits allowance would be £1,599,000. This is because the factor of 0.23 against £1,300,000 is £299,000. This value added on to £1,300,000 equals £1,599,000.

Applying for protected allowances

You can still apply for Fixedfixed Protectionprotection 2016 and Individualindividual Protectionprotection 2016 online.

If you apply for Fixedfixed Protectionprotection 2016 now, the protection cessation conditions apply from 6 April 2016 and continue to apply from 6 April 2023.

The application deadline for both fixed protection 2016 and individual protection 2016 is 5 April 2025.

Tax on excess lump sums

You can only take a maximum of 25% of your pension pot, even if you have a high amount of tax-free lump sum available.

Any lump sums taken above this amount will be taxed at your marginal rate.

Information you should give to your pension schemes

If you hold lifetimeprotected allowanceallowances, protection, you should give details of this to your pension schemes. You may need to also give them details of any other pensions and lump sums you have taken.

If you hold enhanced protection with lump sum protection, you should tell your pension schemes as soon as possible, so they are aware of the value of your pension pot on 5 April 2023.

Losing your lifetimeprotected allowance protectionallowances

Find out more about about protection cessation events, losing your protectionprotected allowances and how to avoid this.