Lifetime Allowance Abolished: What It Means for SIPP Property

Until 5 April 2024, the lifetime allowance (LTA) was the maximum total value of pension benefits an individual could accrue across all registered pension schemes without facing a tax charge. In its final form, the LTA stood at £1,073,100. Any pension benefits above this threshold — when crystallised — were subject to a lifetime allowance charge: 25% if taken as income, 55% if taken as a lump sum. For SIPP property investors with significant property portfolios, the LTA created a ceiling on how much the pension fund could grow before becoming a tax liability.

For example, a SIPP holding a commercial property that had appreciated from £400,000 to £800,000 might, when combined with other pension savings, push the total fund above the LTA. The capital growth on the property — which was exempt from CGT while inside the pension — could ultimately be subject to a 25% charge on crystallisation. This created a tension at the heart of SIPP property investment that advisers had to carefully manage.

From 6 April 2024, the lifetime allowance charge was removed and the LTA was formally abolished. In its place, HMRC introduced two new allowances that apply specifically to tax-free cash distributions:

• Lump Sum Allowance (LSA): £268,275 — the maximum amount of tax-free cash (pension commencement lump sum) you can take across all pension schemes over your lifetime.
• Lump Sum and Death Benefit Allowance (LSDBA): £1,073,100 — the maximum combined amount of tax-free lump sums (including on death) that can be paid out without income tax applying.

Crucially, these new allowances do not cap the total size of your pension fund. A SIPP could theoretically grow to £5 million, £10 million or more without any LTA-style charge. The only restriction is on the amount of tax-free cash you can take — above the LSA, pension income is taxable as normal income, but there is no punitive surcharge simply for having a large pension.

The abolition of the LTA is unambiguously good news for SIPP and SSAS property investors with large or growing pension funds. Previously, a SIPP containing a commercial property that had appreciated significantly might breach the LTA on crystallisation, triggering a charge of 25% on the excess. Now, there is no such charge — the full value of the property's appreciation (already exempt from CGT within the pension) can be retained without fear of an LTA charge.

This makes long-term property investment within a SIPP even more attractive than before. Investors no longer need to model potential LTA breaches or consider strategies like holding property growth to stay below a threshold. The pension can simply be managed for the best possible return, with the full benefit of tax-free growth available without an upper ceiling.

For SSAS schemes with multiple members, the abolition is similarly beneficial — each member's share of the scheme's property and other assets can grow without LTA concern, making the SSAS an even more powerful vehicle for long-term business-linked pension building.

Many individuals with larger pensions applied for LTA protection certificates in previous years — Enhanced Protection, Fixed Protection (at various levels), Individual Protection — to lock in a higher personal LTA above the standard. These protections, in most cases, affect only the tax-free cash calculations under the new allowance framework. Enhanced Protection in particular may affect the LSA and LSDBA calculations differently from standard treatment.

If you hold any form of LTA protection, review its ongoing relevance with a pension specialist. Some protections carried conditions (such as restrictions on further contributions) that may now be unnecessary constraints given that the LTA itself no longer exists. Removing unnecessary restrictions could allow you to resume contributions that had been stopped to preserve a protection certificate — potentially significantly increasing your future SIPP property investment capacity.

This is a complex technical area and a worthwhile review for anyone with an older LTA protection certificate. Our introductions to specialist pension advisers can help you assess whether any action is needed.