On 6 April 2024, the government abolished the Lifetime Allowance (LTA) and replaced it with the Individual’s Lump Sum Allowance (ILSA) and the Individual’s Lump Sum and Death Benefit Allowance (ILSADBA). When you took benefits from a pension scheme before 6 April 2024, you were provided with a percentage of the LTA that your benefits had used up. Trustees were obliged to remind you of this percentage at least once every tax year.

The standard ILSA allowance is £268,275, and the standard ILSADBA allowance is £1,073,100.

Now that the LTA has been abolished, Trustees are obliged to inform you of the amount of ILSA and ILSADBA that your benefits have used up and remind you of this at least once every tax year.

Legislation requires us to use a standard approach to convert the LTA % used into the amount of ILSA and ILSADBA used up.  Broadly speaking, this standard approach assumes that 25% of the LTA you previously used up was taken as tax-free lump sum(s). This is then taken as the amount of ILSA and ILSADBA that have been used up.

If you did not take the maximum amount of tax-free lump sums that you could when your benefits were put into payment, then the amount of ILSA/ILSADBA used up might be higher than the amount of tax-free lump sums that you actually took.

If you wish the amount of ILSA/ILSADBA used up by benefits taken before 6 April 2024 to reflect the actual amount of tax-free lump sums that you took (if any), then you can apply for a Transitional Tax-Free Amount Certificate (TTFAC).

Please note that to apply for a TTFAC:

• you would need complete evidence of the amounts of all lump sums that you took tax-free (either wholly or in part) before 6 April 2024.
• you must not have received a relevant lump sum that was tax-free (either wholly or in part) on or after 6 April 2024.

Where a valid TTFAC is in force for an individual, the standard approach is not used - the amount of ILSA and ILSADBA used up by benefits taken before 6 April 2024 is based on the actual amount of tax-free cash taken, as shown on the TTFAC. 

Further information on TTFACs can be found in HMRC’s pensions tax manual PTM174300 - Lump sum allowance and lump sum and death benefit allowance: Transitional rules for the tax year 2024-25: Transitional tax-free amount certificates - HMRC internal manual - GOV.UK