R04 Lump sum allowance and lump sum and death benefit allowance: free practice questions

1. Question 1 of 5

   What is the standard lump sum allowance (LSA)?

   Option A: £325,000Option B: £1,073,100Option C: £375,000Option D: £268,275

   Show answer

   The answer is D: £268,275

   The LSA is £268,275, a quarter of the final lifetime allowance of £1,073,100. There's no provision to increase it.

   Why the other options are wrong

   A

   £325,000 is the IHT nil rate band, not a pension allowance.

   B

   £1,073,100 is the standard LSDBA.

   C

   £375,000 is a threshold relevant to protected lump sum rights.

2. Question 2 of 5

   A member's remaining LSA is too small to cover the tax-free part of a lump sum. How can the excess be paid, if the scheme allows?

   Option A: As a further tax-free PCLS, whatever their allowanceOption B: As a lump sum taxed at 55% under the old regimeOption C: As a pension commencement excess lump sum, taxed as incomeOption D: As a trivial commutation lump sum, 25% tax-free

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   The answer is C: As a pension commencement excess lump sum, taxed as income

   The excess can be paid as a PCELS, which is taxed as the member's pension income via PAYE.

   Why the other options are wrong

   A

   Tax-free cash is limited by the LSA.

   B

   The 55% charge belonged to the old LTA regime.

   D

   Trivial commutation has its own separate conditions.

3. Question 3 of 5

   A member used 100% of their lifetime allowance before 6 April 2024. What LSA and LSDBA do they have under the standard calculation?

   Option A: The full standard amounts, as the lifetime allowance has been abolishedOption B: Nil, unless they qualify for a transitional tax-free amount certificateOption C: Half the standard amounts, reflecting the LTA usedOption D: The full LSDBA but no LSA at all

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   The answer is B: Nil, unless they qualify for a transitional tax-free amount certificate

   Using 100% of the LTA leaves both allowances at nil under the standard basis. A TTFAC may give a better result.

   Why the other options are wrong

   A

   Previous use of the LTA carries through to the new allowances.

   C

   There's no halving rule.

   D

   Both allowances are reduced to nil.

4. Question 4 of 5

   Which lump-sum death benefit is NOT tested against the deceased member's LSDBA?

   Option A: An uncrystallised funds lump sum paid within two years of a death at 60Option B: Any lump sum where the member died aged 75 or overOption C: A defined benefits lump-sum death benefit where the member died at 50Option D: A drawdown lump sum from funds crystallised in 2025, death at 70

   Show answer

   The answer is B: Any lump sum where the member died aged 75 or over

   Deaths at 75 or over aren't tested, nor are payments outside the two-year window, from pre-April 2024 crystallised funds, or qualifying charity and trivial commutation lump sums.

   Why the other options are wrong

   A

   Uncrystallised funds paid within two years of a death under 75 are tested.

   C

   DB lump-sum death benefits on death under 75 are tested.

   D

   Drawdown funds crystallised after April 2024 are tested on death under 75.

5. Question 5 of 5

   Pam received a pension credit of £300,000 in 2015/16, when the LTA was £1.25m, and claimed a pension credit factor. What is her LSDBA?

   Option A: £1,073,100Option B: £1,250,000Option C: £1,330,644Option D: £1,373,100

   Show answer

   The answer is C: £1,330,644

   Factor: £300,000 / £1.25m = 0.24. LSDBA: £1,073,100 + 0.24 x £1,073,100 = £1,330,644.

   Why the other options are wrong

   A

   The factor increases her LSDBA.

   B

   £1.25m was the LTA in that year.

   D

   £1,373,100 adds the credit itself rather than the factor.

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