The Pension Lifetime Allowance Is Gone — But Tax Traps Remain
The abolition of the Lifetime Allowance was widely celebrated, but the new regime still catches people out. For expats with UK pensions, understanding what's changed — and what hasn't — is more important than ever.
When the UK government abolished the Pension Lifetime Allowance in April 2024, it was hailed as a major simplification. No more worrying about breaching the £1,073,100 cap. No more 55% tax charges on excess funds. For many savers, it felt like a weight had been lifted.
But as with most tax changes, the reality is a bit more nuanced. While the headline limit is gone, a new set of allowances has taken its place — and for expats with substantial UK pensions, the tax traps haven't disappeared entirely. They've just moved.
What actually changed?
The Lifetime Allowance used to cap the total amount you could hold in pensions without facing punitive tax charges. If your pot exceeded the limit when you accessed it, you'd pay 55% on the excess if taken as a lump sum, or 25% if taken as income.
That's now gone. In its place, we have two new allowances that focus specifically on tax-free cash:
The Lump Sum Allowance (LSA) limits the total tax-free cash you can take across all your pensions to £268,275. This is the same 25% of the old Lifetime Allowance, just repackaged.
The Lump Sum and Death Benefit Allowance (LSDBA) caps tax-free lump sums — including death benefits — at £1,073,100.
So while you can now build a pension pot of any size without a specific penalty, the amount you can withdraw tax-free remains capped. For most people, this won't make much difference. But for those with larger pots, or those who've already taken tax-free cash in the past, it's worth understanding where the limits now sit.
Why this matters for expats
If you've spent part of your career in the UK and part abroad, there's a good chance your pension situation is more complicated than average. You might have a mix of defined benefit and defined contribution schemes, possibly alongside an international pension or QROPS.
Here's where it gets tricky. Any tax-free cash you've already taken counts against your new Lump Sum Allowance. If you took your full 25% from a previous pension years ago, that reduces what you can take tax-free from other pots now.
For expats who've transferred pensions overseas or consolidated schemes over the years, tracking this history can be challenging. HMRC expects you to know how much tax-free cash you've taken across your lifetime — but not everyone has kept detailed records, and some older schemes may not have either.
The risk is that you unknowingly exceed the allowance and face an unexpected tax bill. It's not the 55% charge of the old regime, but it can still sting.
Death benefits have changed too
Under the old rules, if you died before age 75 with unused pension funds, your beneficiaries could inherit them tax-free (up to the Lifetime Allowance). After 75, inherited pensions were taxed as income.
The new rules largely preserve this, but with the LSDBA now acting as the cap on tax-free death benefits. If your pension is worth more than £1,073,100 when you die, the excess will be taxed when your beneficiaries receive it.
For expats with larger pots, this is worth factoring into estate planning. Depending on where your beneficiaries live, the interaction between UK tax rules and local inheritance laws can get complicated.
Transitional protections still apply — if you have them
If you secured Lifetime Allowance protection in the past — Fixed Protection, Individual Protection, or one of the earlier versions — you may still benefit from a higher tax-free cash allowance. These protections haven't disappeared; they've been translated into the new regime.
But the rules around maintaining that protection remain strict. Making new contributions or joining new schemes can invalidate it, sometimes without you realising. If you're unsure whether you have protection or what it now means, it's worth checking before making any changes to your pension arrangements.
What should expats do?
First, get a clear picture of what you've already taken. If you've accessed tax-free cash from any UK pension in the past, try to establish how much. Your pension providers should be able to help, though older records may require some digging.
Second, think carefully before taking further lump sums. Once you've used your Lump Sum Allowance, any additional withdrawals will be taxed at your marginal rate. For higher earners, that can mean losing 40% or more to tax.
Third, consider how your pension fits into your broader financial plan. The abolition of the Lifetime Allowance has made pensions more attractive for long-term wealth building and inheritance planning — but only if you structure things sensibly.
And finally, if you're sitting on old protections or a complicated pension history, it's worth getting professional advice before making any moves. The new rules are simpler in some ways, but they've created fresh complexity in others.
The bottom line
The Lifetime Allowance may be gone, but the tax-free limits remain. For expats with UK pensions, the key is understanding how the new allowances interact with your specific circumstances — especially if you've already taken benefits or hold protections from the old regime.
Will is an Independent Financial Adviser with over a decade of experience helping expats make the most of their international status.