Pensions
Serious Ill Health Lump Sums (SIHLS)
Last Updated: 6 Apr 24 5 min read
A Serious Ill Health Lump Sum (SIHLS) is a special lump sum payable to an individual with limited life expectancy. It is effectively the early payment of a lump sum death benefit.
Contents
1. What is a Serious Ill Health Lump Sum?
2. How do Serious Ill Health Lump Sums impact the LSA and LSDBA?
What is a Serious Ill Health Lump Sum (SIHLS)?
A SIHLS is a type of lump sum payment paid to an individual with limited life expectancy. It is effectively the early payment of lump sum death benefits.
Benefits may be commuted to a SIHLS at any age if:
- a registered medical practitioner provides written evidence that the member will live for less than 12 months
- for payments made before 16 September 2016, the member no longer has any entitlement to benefits under the arrangement and that arrangement had never crystallised or paid any benefit
- for payments made on or after 16 September 2016, the payment extinguishes all uncrystallised rights under the arrangement.
Before 6 April 2011 the member had to be under 75 to receive this lump sum. Now the tax treatment differs where the payment is before or after 75. The taxation treatment of serious ill-health lump sums varies significantly from other benefit crystallisation events.
Where an individual has Enhanced Protection then any PCLS or non taxable amount of UFPLS required should be taken prior to any SIHLS.
How do Serious Ill Health Lump Sums impact the LSA and LSDBA?
You can read more about these allowances in our LSA and LSDBA pages.
Lump Sums where entitlement arose before 6th April 2024
The SIHLS will have used up LTA.
For the standard transitional calculation then:
- 25% of the lifetime allowance used up by the SIHLS will be deducted from the LSA.
- 100% of lifetime allowance used by the SIHLS is deducted from LSDBA (and OTA). Additionally, the full amount of lifetime allowance used by non SIHLS events is deducted instead of the usual 25%.
Lump Sums where entitlement arose after 5th April 2024
LSA
The payment of a SIHLS does not reduce the LSA.
LSDBA
The non taxable amount of the SIHLS is deducted.
NB. Where someone with enhanced protection has received a SIHLS at any time they cannot receive a PCLS as the permitted maximum for the PCLS is set to £0.
How is a Serious Ill Health Lump Sum taxed?
Before age 75
- Serious ill-health lump sums are paid tax-free up to the available LSDBA
- Any amount over the LSDBA is taxed as pension income at the individuals marginal rate.
After age 75
- The full lump sum is taxed as pension income at the member’s marginal rate
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