HMRC

HMRC guidance: Taking higher tax-free lump sums with lifetime allowance protection

HMRC has published guidance on taking higher tax-free lump sums with lifetime allowance protection following the pension changes announced at Spring Budget earlier this year. Here’s what it says.


From 6th April 2023, the amount of tax-free lump sum you can take is 25% of your pension pot, up to a maximum of 25% of the standard lifetime allowance. The current lifetime allowance is £1,073,100.

If you hold certain lifetime allowance protections, the amount of tax-free lump sum you can take may be higher. The amount you are entitled to depends on the lifetime allowance protection that you hold.

If you have a protection cessation event that means that you are no longer entitled to a lifetime allowance protection, you will also no longer be entitled to a higher tax-free lump sum.

Enhanced protection

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 5th April 2023.

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

Any contributions made after 5th 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.

If your successful application was received by HMRC before 15th March 2023, then from 6th April 2023, you can continue to contribute to your pension schemes without losing your enhanced protection.

If your successful application was received by HMRC on or after 15th March 2023, you’ll still need to meet certain conditions for the protection to be valid.

Primary protection

If you hold valid primary protection with lump sum protection, you continue to be protected at the value of the lump sum protection stated on your protection certificate.

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

If your successful application was received by HMRC before 15th March 2023, then from 6th April 2023, you can continue to contribute to your pension schemes without losing your fixed protection.

If your successful application was received by HMRC on or after 15th March 2023, you’ll still need to meet certain conditions for the protection to be 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 value of all of your pension pots on the 5th April 2014
  • £1,500,000

You will be entitled to a tax-free lump sum of 25% of your protected lifetime allowance.

For example, if you hold individual protection 2014 at £1,400,000, you’ll have an increased tax-free lump sum of £350,000.

If you have continued to contribute to your pension schemes from 6th April 2014, these contributions will not be counted towards the amount of tax-free lump sum you are entitled to.

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 5th April 2016 or £1,250,000. You will be entitled to a tax-free lump sum of 25% of your protected lifetime allowance or 25% of the standard lifetime allowance, whichever is higher.

If you have a pension debit applied from a pension sharing order 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 the standard lifetime allowance.

Applying for lifetime allowance protection

You can still apply for fixed protection 2016 and individual protection 2016 online.

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

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 lifetime allowance protection, you should give details of this to your pension schemes. You may need to also give them details of any other pensions 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 5th April 2023.

Losing your lifetime allowance protection

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

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