diff --git a/go.mod b/go.mod
index e417a2c61..903e369a1 100644
--- a/go.mod
+++ b/go.mod
@@ -30,7 +30,7 @@ require (
 	github.com/lightninglabs/lightning-node-connect/hashmailrpc v1.0.2
 	github.com/lightninglabs/lndclient v1.0.1-0.20240725080034-64a756aa4c36
 	github.com/lightninglabs/neutrino/cache v1.1.2
-	github.com/lightningnetwork/lnd v0.18.0-beta.rc4.0.20240723043204-f09d4042aee4
+	github.com/lightningnetwork/lnd v0.18.0-beta.rc4.0.20240919091721-70580403898e
 	github.com/lightningnetwork/lnd/cert v1.2.2
 	github.com/lightningnetwork/lnd/clock v1.1.1
 	github.com/lightningnetwork/lnd/fn v1.1.0
diff --git a/go.sum b/go.sum
index 7fae92d46..b9943d903 100644
--- a/go.sum
+++ b/go.sum
@@ -490,8 +490,8 @@ github.com/lightninglabs/protobuf-go-hex-display v1.30.0-hex-display h1:pRdza2wl
 github.com/lightninglabs/protobuf-go-hex-display v1.30.0-hex-display/go.mod h1:HV8QOd/L58Z+nl8r43ehVNZIU/HEI6OcFqwMG9pJV4I=
 github.com/lightningnetwork/lightning-onion v1.2.1-0.20230823005744-06182b1d7d2f h1:Pua7+5TcFEJXIIZ1I2YAUapmbcttmLj4TTi786bIi3s=
 github.com/lightningnetwork/lightning-onion v1.2.1-0.20230823005744-06182b1d7d2f/go.mod h1:c0kvRShutpj3l6B9WtTsNTBUtjSmjZXbJd9ZBRQOSKI=
-github.com/lightningnetwork/lnd v0.18.0-beta.rc4.0.20240723043204-f09d4042aee4 h1:LPnz0JxnzXJvCro714eBanzO7FKx5HF0ldU++zIu9yY=
-github.com/lightningnetwork/lnd v0.18.0-beta.rc4.0.20240723043204-f09d4042aee4/go.mod h1:0gen58n0DVnqJJqCMN3AXNtqWRT0KltQanlvehnhCq0=
+github.com/lightningnetwork/lnd v0.18.0-beta.rc4.0.20240919091721-70580403898e h1:Weu9TWNEIpC4XLbcUoSFK3Pv2aUSwn7NlYZKdsm8wUU=
+github.com/lightningnetwork/lnd v0.18.0-beta.rc4.0.20240919091721-70580403898e/go.mod h1:/Uh0qCiU/oQls68spxpmP0kRjX/uGkLzt7P/uPpDofE=
 github.com/lightningnetwork/lnd/cert v1.2.2 h1:71YK6hogeJtxSxw2teq3eGeuy4rHGKcFf0d0Uy4qBjI=
 github.com/lightningnetwork/lnd/cert v1.2.2/go.mod h1:jQmFn/Ez4zhDgq2hnYSw8r35bqGVxViXhX6Cd7HXM6U=
 github.com/lightningnetwork/lnd/clock v1.1.1 h1:OfR3/zcJd2RhH0RU+zX/77c0ZiOnIMsDIBjgjWdZgA0=
diff --git a/server.go b/server.go
index 616a4d7e5..4e10fbc13 100644
--- a/server.go
+++ b/server.go
@@ -990,7 +990,8 @@ func (s *Server) HandleTraffic(cid lnwire.ShortChannelID,
 //
 // NOTE: This method is part of the routing.TlvTrafficShaper interface.
 func (s *Server) PaymentBandwidth(htlcBlob, commitmentBlob lfn.Option[tlv.Blob],
-	linkBandwidth lnwire.MilliSatoshi) (lnwire.MilliSatoshi, error) {
+	linkBandwidth,
+	htlcAmt lnwire.MilliSatoshi) (lnwire.MilliSatoshi, error) {
 
 	srvrLog.Debugf("PaymentBandwidth called, htlcBlob=%v, "+
 		"commitmentBlob=%v", spew.Sdump(htlcBlob),
@@ -1001,7 +1002,7 @@ func (s *Server) PaymentBandwidth(htlcBlob, commitmentBlob lfn.Option[tlv.Blob],
 	}
 
 	return s.cfg.AuxTrafficShaper.PaymentBandwidth(
-		htlcBlob, commitmentBlob, linkBandwidth,
+		htlcBlob, commitmentBlob, linkBandwidth, htlcAmt,
 	)
 }
 
diff --git a/tapchannel/aux_traffic_shaper.go b/tapchannel/aux_traffic_shaper.go
index 08b7b82e0..47259004f 100644
--- a/tapchannel/aux_traffic_shaper.go
+++ b/tapchannel/aux_traffic_shaper.go
@@ -120,8 +120,8 @@ func (s *AuxTrafficShaper) HandleTraffic(_ lnwire.ShortChannelID,
 // should be handled by the traffic shaper, the HandleTraffic method should be
 // called first.
 func (s *AuxTrafficShaper) PaymentBandwidth(htlcBlob,
-	commitmentBlob lfn.Option[tlv.Blob],
-	linkBandwidth lnwire.MilliSatoshi) (lnwire.MilliSatoshi, error) {
+	commitmentBlob lfn.Option[tlv.Blob], linkBandwidth,
+	htlcAmt lnwire.MilliSatoshi) (lnwire.MilliSatoshi, error) {
 
 	// If the commitment or HTLC blob is not set, we don't have any
 	// information about the channel and cannot determine the available
@@ -140,6 +140,28 @@ func (s *AuxTrafficShaper) PaymentBandwidth(htlcBlob,
 		return linkBandwidth, nil
 	}
 
+	// Get the minimum HTLC amount, which is just above dust.
+	minHtlcAmt := lnwire.NewMSatFromSatoshis(DefaultOnChainHtlcAmount)
+
+	// LND calls this hook twice. Once to see if the overall budget of the
+	// node is enough, and then during pathfinding to actually see if
+	// there's enough balance in the channel to make the payment attempt.
+	//
+	// When doing the overall balance check, we don't know what the actual
+	// htlcAmt is in satoshis, so a value of 0 will be passed here. Let's at
+	// least check if we can afford the min amount above dust. If the actual
+	// htlc amount ends up being greater when calling this method during
+	// pathfinding, we will still check it below.
+
+	// If the passed htlcAmt is below dust, then assume the dust amount. At
+	// this point we know we are sending assets, so we cannot anchor them to
+	// dust amounts. Dust HTLCs are added to the fees and aren't
+	// materialized in an on-chain output, so we wouldn't have anything
+	// to anchor the asset commitment to.
+	if htlcAmt < minHtlcAmt {
+		htlcAmt = minHtlcAmt
+	}
+
 	commitment, err := cmsg.DecodeCommitment(commitmentBytes)
 	if err != nil {
 		return 0, fmt.Errorf("error decoding commitment blob: %w", err)
@@ -161,6 +183,14 @@ func (s *AuxTrafficShaper) PaymentBandwidth(htlcBlob,
 	// the amount.
 	htlcAssetAmount := htlc.Amounts.Val.Sum()
 	if htlcAssetAmount != 0 && htlcAssetAmount <= localBalance {
+		// Check if the current link bandwidth can afford sending out
+		// the htlc amount without dipping into the channel reserve. If
+		// it goes below the reserve, we report zero bandwdith as we
+		// cannot push the htlc amount.
+		if linkBandwidth < htlcAmt {
+			return 0, nil
+		}
+
 		// We signal "infinite" bandwidth by returning a very high
 		// value (number of Satoshis ever in existence), since we might
 		// not have a quote available to know what the asset amount
@@ -190,6 +220,14 @@ func (s *AuxTrafficShaper) PaymentBandwidth(htlcBlob,
 
 	mSatPerAssetUnit := quote.BidPrice
 
+	// At this point we have acquired what we need to express the asset
+	// bandwidth expressed in satoshis. Before we return the result, we need
+	// to check if the link bandwidth can afford sending a non-dust htlc to
+	// the other side.
+	if linkBandwidth < minHtlcAmt {
+		return 0, nil
+	}
+
 	// The available balance is the local asset unit expressed in
 	// milli-satoshis.
 	return lnwire.MilliSatoshi(localBalance) * mSatPerAssetUnit, nil
diff --git a/tapchannel/commitment.go b/tapchannel/commitment.go
index 21035acea..a2ed43a60 100644
--- a/tapchannel/commitment.go
+++ b/tapchannel/commitment.go
@@ -630,6 +630,11 @@ func CreateAllocations(chanState *channeldb.OpenChannel, ourBalance,
 		leaseExpiry = chanState.ThawHeight
 	}
 
+	dustLimit := chanState.LocalChanCfg.DustLimit
+	if !isOurCommit {
+		dustLimit = chanState.RemoteChanCfg.DustLimit
+	}
+
 	// The "local" and "remote" notations are always from the perspective of
 	// the local node. So if we want to find out the asset balance of the
 	// _initiator_ of the channel, we just need to take into account the
@@ -707,6 +712,19 @@ func CreateAllocations(chanState *channeldb.OpenChannel, ourBalance,
 			allocType = CommitAllocationHtlcIncoming
 		}
 
+		// If HTLC is dust, do not create allocation for it.
+		isDust := lnwallet.HtlcIsDust(
+			chanState.ChanType, isIncoming, isOurCommit,
+			filteredView.FeePerKw, htlc.Amount.ToSatoshis(),
+			dustLimit,
+		)
+		if isDust {
+			// We need to error out, as a dust HTLC carrying assets
+			// should not be expected.
+			return fmt.Errorf("error creating asset HTLC " +
+				"allocation, HTLC is dust")
+		}
+
 		allocations = append(allocations, &Allocation{
 			Type:           allocType,
 			Amount:         rfqmsg.Sum(htlc.AssetBalances),
@@ -773,6 +791,16 @@ func CreateAllocations(chanState *channeldb.OpenChannel, ourBalance,
 				"sibling: %w", err)
 		}
 
+		// If HTLC is dust, do not create allocation for it.
+		isDust := lnwallet.HtlcIsDust(
+			chanState.ChanType, isIncoming, isOurCommit,
+			filteredView.FeePerKw, htlc.Amount.ToSatoshis(),
+			dustLimit,
+		)
+		if isDust {
+			return nil
+		}
+
 		allocations = append(allocations, &Allocation{
 			Type:           AllocationTypeNoAssets,
 			BtcAmount:      htlc.Amount.ToSatoshis(),