If you still think there is a “lifetime allowance” on your UK pension, you are working from an out-of-date map. The lifetime allowance was abolished in April 2024, and in its place sits something most expats have never heard of: the lump sum allowance. For UK expats in Portugal with decent-sized pension pots, understanding this number — £268,275 — matters far more than most people realise.

In this guide I will walk through what the lump sum allowance actually is, how it interacts with Portuguese tax once you live here, who still benefits from the old protection regimes, and the trap that catches people transferring pensions overseas. As ever, this is the practical version — the one I find myself sketching on a notepad for clients here in the Algarve most weeks.

What Replaced the Lifetime Allowance?

For two decades, the lifetime allowance (LTA) capped how much you could build up in UK pensions without a tax charge. It bounced around from £1.8 million down to £1,073,100, and in April 2024 it was scrapped entirely. But “scrapped” did not mean “no limits”. HMRC replaced one allowance with three.

The lump sum allowance (LSA) is the one that affects most people. It caps the total tax-free cash you can take from your pensions during your lifetime at £268,275 — exactly 25% of the old £1,073,100 lifetime allowance. Every time you take tax-free cash, whether as a pension commencement lump sum when you crystallise a pot or as the tax-free slice of an UFPLS payment (an “uncrystallised funds pension lump sum” — taking a chunk directly from an untouched pot, 25% tax-free and 75% taxable), it uses up part of your LSA.

The lump sum and death benefit allowance (LSDBA) sits at £1,073,100 and covers tax-free lump sums paid on death before 75 or in cases of serious ill-health. And the overseas transfer allowance (OTA), also £1,073,100, applies when you transfer pensions out of the UK — more on that one shortly, because it is the one expats trip over.

The crucial shift in thinking: there is no longer a limit on how big your pension can grow, or a tax charge simply for having a large pot. The limits now bite specifically on lump sums. Growth is unlimited; tax-free cash is not.

How the Lump Sum Allowance Works in Practice

Take a worked example. Suppose you have £1.4 million across a couple of SIPPs — not unusual for someone who spent a career in UK financial services or law before moving to Portugal. Under the old rules you would have faced an LTA charge. Today, no charge for the size of the pot. But your tax-free cash is capped at £268,275, not 25% of £1.4 million (which would be £350,000). That last £81,725 of what you might have assumed was tax-free cash is, in fact, taxable income when you draw it.

Now flip it around. If your total pension savings are, say, £600,000, then 25% is £150,000 — comfortably inside the LSA. For you, the allowance is academic. This is worth saying plainly: most people will never touch the LSA ceiling. It becomes a live planning issue once your combined pots head north of roughly £1 million.

A few practical points I find myself repeating:

• It is cumulative across all your pensions. Tax-free cash from a workplace scheme in 2019 and a SIPP in 2026 both count against the same allowance.
• Pre-2024 withdrawals count too. If you took benefits under the old LTA regime, a standard calculation converts your previous LTA usage into LSA usage — broadly, 25% of the LTA percentage you used.
• Defined benefit lump sums count. The tax-free lump sum from a final salary scheme uses LSA just like a SIPP withdrawal does.

The Portugal Twist: UK Tax-Free Is Not Portuguese Tax-Free

Here is where living in Portugal changes the picture entirely. The LSA is a UK tax concept. It tells you how much lump sum the UK will pay without UK tax. But once you are Portuguese tax resident, it is generally Portugal — under the UK–Portugal double tax treaty — that has taxing rights over your private pension income, including lump sums.

Portugal does not have a “25% tax-free lump sum” rule. A withdrawal that is tax-free in UK terms may still be assessable in Portugal, with the treatment depending on how the pension was built up, how the payment is classified, and whether you hold NHR or IFICI status or are taxed under the standard regime. In my experience this is the single most common misunderstanding among British retirees here — people sequence their withdrawals around a UK allowance while ignoring the Portuguese side, which is usually the side that actually determines the tax bill.

The planning consequence: for a Portugal resident, the LSA question (“how much will the UK pay out tax-free?”) always has to be answered alongside the Portuguese question (“how will this payment be taxed here?”). Sometimes the right answer is to take less lump sum, not more, and draw income in a Portuguese-efficient way instead. Timing — for instance taking lump sums before you become Portuguese tax resident under the 183-day rule — can make a five or six figure difference.

Protections: Some People Have a Bigger Allowance

If you registered for one of HMRC’s protection regimes over the years — Fixed Protection 2012, 2014 or 2016, Individual Protection 2014 or 2016, or the older Primary and Enhanced Protections — your lump sum allowance is generally higher than the standard £268,275. Someone with Fixed Protection 2016, for example, has an LSA of £312,500 (25% of their protected £1.25 million).

Two things to check, especially from abroad. First, dig out your protection certificate or look it up via your HMRC online account on GOV.UK — many people registered a decade ago and have simply forgotten. Second, if you took benefits before April 2024, ask whether a transitional tax-free amount certificate (TTFAC) would help you. The standard transitional calculation assumes you took the full 25% tax-free cash on past crystallisations; if you actually took less, a certificate based on your real figures can restore lost allowance. It must be applied for before your first lump sum after April 2024, so it needs to be on the checklist early, not as an afterthought.

The Overseas Transfer Allowance: The Expat Trap

The third allowance is the one built specifically for people like us. Transfer your UK pension to a qualifying recognised overseas pension scheme (QROPS) and the transfer value is tested against your £1,073,100 overseas transfer allowance. Exceed it, and the excess suffers a 25% overseas transfer charge.

Since the 2024 rule changes, transfers to EEA-based QROPS no longer enjoy the blanket exclusion from the charge that they once did, which has made large transfers to Malta or Gibraltar schemes considerably less attractive for many Portugal residents. For most of the British clients I see here, a UK SIPP held as a non-resident does the job with lower costs and fewer moving parts — but the right answer depends on pot size, the 2027 inheritance tax changes, and your long-term residency plans. If a transfer is on your mind, model the OTA position first, not after the paperwork has started.

Frequently Asked Questions

Is the lump sum allowance per pension or in total?

In total. The £268,275 covers all tax-free lump sums from all your UK registered pensions across your lifetime, including amounts converted from pre-2024 withdrawals under the old lifetime allowance rules.

Can my pension still grow above £1,073,100 without a tax charge?

Yes. Since April 2024 there is no tax charge simply for the size of your pension. The allowances only limit tax-free lump sums during life, on death before 75, and on overseas transfers — not growth or total pot size.

Does the 25% tax-free lump sum exist if I live in Portugal?

The UK will still pay it without UK tax (within your LSA), but as a Portuguese tax resident the payment may be taxable in Portugal under the double tax treaty. Always check the Portuguese treatment before withdrawing — the UK label “tax-free” does not carry across the border automatically.

What happens if I exceed the lump sum allowance?

Amounts above the LSA cannot be paid as tax-free cash. They are paid as taxable pension income instead — taxed at your marginal rate in the country that holds taxing rights, which for Portugal residents is usually Portugal.

I have Fixed Protection 2016 — is it still worth anything?

Yes. Valid protections carry through to the new regime and give you a higher lump sum allowance — £312,500 in the case of FP2016. Keep the certificate safe and make sure any adviser you work with knows about it before you crystallise anything.

What to Do Next

The lifetime allowance is gone, but the £268,275 lump sum allowance quietly took its place — and for Portugal residents it is only half the story, because Portuguese tax usually decides what you actually keep. Before taking any lump sum, check your LSA position, hunt down old protections, and get the Portuguese treatment confirmed.

If you’d like to discuss how this affects your personal situation, get in touch with our team. We specialise in helping UK expats in Portugal make the most of their pensions and investments.

Matthew Renier is a Chartered Financial Adviser at Arthur Browns Wealth Management, based in the Algarve, Portugal. He has over 20 years of experience helping British expats manage their pensions and financial planning across borders.

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