Key facts
- 25% of each pension pot can usually be taken tax free; the rest is taxable income
- Lump sum allowance caps total tax free cash at £268,275 across all pensions
- Normal minimum pension age is 55, rising to 57 from 6 April 2028
- Taking taxable pension income can trigger the money purchase annual allowance of £10,000
Tax free cash is separate from the State Pension and from pension tax relief on the way in. Use our pension calculator to model your pot, then see how withdrawals might affect your tax bill with the income tax calculator.
How much pension is tax free
The standard rule for defined contribution pensions is that 25% of each pot can be taken tax free. The remaining 75% is treated as taxable income when you withdraw it.
On a £200,000 pot, that means £50,000 tax free and £150,000 taxable if you crystallise the full pot at once. You do not have to take the taxable part immediately: many people leave the rest invested in drawdown.
The lump sum allowance
The lump sum allowance (LSA) caps the total tax free cash you can take across all your pensions at £268,275 for 2026/27. This replaced the old lifetime allowance tax free cash rules from 6 April 2024.
Normally 25% of each pot is tax free, but once your combined tax free withdrawals reach £268,275, further lump sums are fully taxable. People with certain HMRC protections from earlier rules may have a higher allowance.
Tax free cash by pot size (2026/27)
£100,000 pot: £25,000 tax free
£200,000 pot: £50,000 tax free
£400,000 pot: £100,000 tax free
£1,073,100 pot: £268,275 tax free (25% equals the £268,275 cap)
When you can take your pension
The normal minimum pension age for most workplace and personal pensions is 55, rising to 57 from 6 April 2028. You cannot usually access your pot before that age unless you qualify for an exception, such as serious ill health.
The State Pension is separate: it is paid from State Pension age, currently 66, not from 55. See our State Pension guide for when that starts and how much you may receive.
Ways to take your tax free cash
You can take the full 25% tax free amount in one go when you first access a pot. Alternatively, you can take money in chunks where each withdrawal is 25% tax free and 75% taxable. This is often called uncrystallised funds pension lump sum (UFPLS).
The taxable remainder is usually taken as drawdown (keeping the rest invested and withdrawing when needed) or used to buy an annuity (a guaranteed income for life). The right mix depends on your income needs, tax position, and whether you want flexibility or certainty.
The tax trap to avoid
Taxable pension withdrawals count as income. Taking a large lump sum in one tax year can push you into a higher income tax band, especially if you are still working. Spread withdrawals across years where possible.
Taking flexible taxable income can also trigger the money purchase annual allowance (MPAA), cutting how much you can pay into pensions with tax relief to £10,000 a year. That matters if you plan to keep contributing through work or self-employment. See our pension tax relief guide for how the MPAA fits with the main annual allowance.
Pension Calculator
Project your pension pot and see how tax free cash might fit your retirement plan.
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Frequently Asked Questions
Usually 25% of your pot, up to a total lump sum allowance of £268,275. The rest is taxed as income.
It is the cap on total tax free cash across your pensions, set at £268,275 for 2026/27, replacing the old lifetime allowance.
Yes, normally 25% of each pot is tax free, but the combined tax free total is capped by the £268,275 lump sum allowance.
Normally from age 55, rising to 57 from 6 April 2028, unless you are in serious ill health.
Yes, anything above the tax free part is taxed as income at your usual rates when you take it.
Yes, each withdrawal can be 25% tax free and 75% taxable, or you can take the full 25% at once.
Taking taxable income can trigger the money purchase annual allowance, cutting your contribution limit to £10,000 a year.
There is no announced abolition. The 25% rule applies, capped by the lump sum allowance.
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James Hartley is a CIMA qualified financial analyst and Founder and Lead Financial Analyst at WhatsUK, with 8+ years in UK tax, payroll, and compliance. He builds every calculator on WhatsUK and authors all editorial content, ensuring every figure is verified against official HMRC sources before publication.
Sources & Official References
- GOV.UK Tax on your private pension- Tax free lump sum and lump sum allowance £268,275
- GOV.UK lump sum allowance- Confirm LSA rules and protections on current GOV.UK guidance
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Disclaimer: This calculator provides estimates based on standard HMRC rates for 2026/27. Results may vary based on individual circumstances. This is not financial advice. Always consult a qualified accountant or CIMA-qualified financial adviser for personal tax matters.