Annual Allowance, LSA and LS&DBA 

Making a contribution to your SSAS is an extremely tax-efficient way of funding your pension from your company. 

Contributions qualify for corporation tax relief and are not subject to Income Tax or National Insurance. 

The company can contribute up to the Annual Allowance for every member of the scheme. 

Prior to the 6 April 2024, an individuals benefits were restricted by the Lifetime Allowance (LTA) test , the maximum lifetime allowance in tax year 2023-2024 was £1,073,100 (unless the individual had personalised protection, which may have given them a higher entitlement). With effect from 6 April 2024, the LTA has been replaced with two new tests called the Lump sum Allowance (LSA) and the Lump Sum & Death Benefit Allowance (LS&DBA). They are both tests on the amount of tax free lump sum that can be paid. The LSA maximum is £268,275 for tax year 2024-2025 and the LS&DBA maximum is £1,073,100 for tax year 2024-2025. The tests will be carried out at relevant benefit crystallisation events. Some events are caught by both tests, such as payment of pension commencement lump sum and uncrystallised funds pension lump sum. The calculations for both tests include previous LTA usage, so it is important that you retain any previous LTA statements sent to you prior to 6 April 2024. The LS&DBA test is both a test on tax-free lump sum taken during the individual's lifetime and also on death.

Company contributions may need to be justified to the local Inspector of Taxes as being relevant to the members involvement in the business.

The Annual Allowance includes all of a member's pension contributions. Contributions to other pension arrangements need to be deducted from the Annual Allowance in order to calculate the maximum allowable contribution to the SSAS. As of 6 April 2024, the Annual Allowance is £60,000.

Higher earners need to be aware of changes from 6 April 2023. The amount they can invest in a pension and on which they receive tax relief may be as little as £10,000. This includes company contributions to a SSAS, or any other pensions, on their behalf. Earners are affected if their income is more than £260,000, although those with lower incomes could also be caught. There are two definitions of income. These are Adjusted Income and Threshold Income. Adjusted Income includes all taxable income (e.g. salary, bonus, BIK, self-employed earnings, pension income and investment income such as dividends, rent and interest) PLUS pension contributions. Threshold Income includes all taxable income as above but NOT pension contributions (unless paid under a salary sacrifice arrangement where an employee deliberately receives a lower income in exchange for pension contributions). Where Adjusted Income is £260,000 or more AND Threshold Income is over £200,000 then the Annual Allowance reduces. This means that when Adjusted Income reaches £320,000, the Annual Allowance reduces to £10,000. The Annual Allowance is £10,000 thereafter. 

Please note that if you take income from your pension (excluding tax free cash), other than via any relevant Capped Drawdown limits, your Annual Allowance will reduce to £10,000 regardless of earnings. 

Tax Year	Annual Allowance	Lifetime Allowance
2018/19	£40,000	£1,030,000
2019/20	£40,000	£1,055,000
2020/21	£40,000	£1,073,100
2021/22	£40,000	£1,073,100
2022/23	£40,000	£1,073,100
2023/24	£60,000	£1,073,100
Tax Year	LSA	LS&DBA
2024/25	£268,275	£1,073,100

 The Lifetime Allowance is abolished with effect from 6 April 2024.  If you require further information regarding the new LSA and LS&DBA, please contact us.