The LSDBA and death benefits payments

Under the new Lifetime Allowance (LTA) replacement regime, one of the three new allowances is the Lump Sum and Death Benefit Allowance (LSDBA). This is set at £1,073,100, except where LTA protections apply.

The LSDBA is used when certain lump sum death benefits are paid (in addition to serious ill health lump sum payments, pension commencement lump sum payments and the tax-free portion of uncrystallised funds pension lump sum payments). If an individual took benefits prior to 6 April 2024 that used some or all of their LTA, their LSDBA may be reduced.

The following information is a rough guide to the tax treatment of money purchase death benefit payments.

• Defined benefit lump sum death benefits
• Uncrystallised funds lump sum death benefits
• Pension protection lump sum death benefits
• Annuity protection lump sum death benefits
• Drawdown lump sum death benefits
• Flexi-access drawdown lump sum death benefits

Payments to beneficiary drawdown are not tested against the Lump Sum and Death Benefit Allowance.

The process illustrated below assumes benefits are settled within two years of death.

If you want more help with understanding the rules relating to the LTA replacement, please visit the page Replacement of the lifetime allowance.

The following links take you to the Gov.uk site and the relevant area of HMRC's 'Pensions Tax Manual':
 

• Pension death benefits (PTM071000)
• Lump Sum and Death Benefit Allowance (PTM172000)
• Beneficiary drawdown (PTM072430)