Nothing has been announced. The tax-free lump sum comes up in Budget speculation most years and the 2026/27 rules are unchanged. This is not a forecast — move either figure to see how a change of that size would work.
The numbers behind it
Two rules decide your tax-free cash, and the second one only shows up on larger pots. Everything above the tax-free amount is ordinary income in the year you take it.
A quarter of each pot you access comes out tax-free. Take it in one go or in slices as you move parts of the pot into drawdown — the share is the same either way.
The Lump Sum Allowance is the lifetime total across every pension you hold. It is 25% of the old £1,073,100 lifetime allowance and it is frozen, so it bites on any pot over £1,073,100.
The excess stacks on top of your other income for the year. Over £100,000 of total income your personal allowance also starts disappearing, £1 for every £2, which is why a big withdrawal can cost more than the band suggests.
Why this one exists
Most lump sum calculators stop at "25% of your pot" and hand you a number. That is right for a pot under about a million pounds and quietly wrong above it, because the frozen £268,275 allowance takes over and nothing on screen tells you. It is also wrong for anyone who has already taken tax-free cash from an older pension, because that came out of the same lifetime total.
This one applies both rules, remembers what you have already used, and then does the part that actually costs money: the income tax on anything you take above the tax-free amount, at your own marginal rate, with the personal allowance taper over £100,000 and Scotland's six bands where they apply.
It also carries a what-if panel, because the tax-free lump sum is one of the most-speculated-about parts of the UK pension system and almost nobody knows what a change would actually do to their own figure. Moving the share or the cap yourself is a better answer to that than a headline is. It is a mechanism, not a prediction, and nothing on this page suggests what anyone should do about it.
Worth knowing before you take it
Taking it in slices is normal
You do not have to empty a pot to get at the tax-free part. Moving £100,000 of a £400,000 pot into drawdown releases £25,000 tax-free and leaves the rest untouched and invested. Schemes call this phased or partial drawdown, and it uses the allowance a bit at a time.
The taxable part is taxed the year you take it
Not spread, not averaged. Taking £60,000 of taxable cash in one year on top of a £30,000 salary is taxed as if you earned £90,000 that year. Splitting the same withdrawal across two tax years is frequently the difference between a basic-rate and a higher-rate bill, which is the single most useful thing to understand about the mechanics.
Emergency tax on the first payment is common
Providers often apply a month-one emergency code to a first flexible payment, which over-deducts. It comes back — either through your tax code over the year or by claiming it from HMRC with form P55, P53Z or P50Z. It is a cash-flow problem, not a permanent loss.
Protections change the numbers
If you hold enhanced, fixed or primary protection, or a scheme-specific lump sum entitlement, your tax-free cash can be more than £268,275 and is worked out under those rules instead. This calculator uses the standard allowance; if you have a protection certificate, your scheme's figure is the one that counts.
Defined benefit is a different mechanism
Final salary and CARE schemes offer a lump sum by giving up annual pension at a rate the scheme sets — often between 12:1 and 20:1. That trade is a scheme decision, not a 25% calculation, though it still counts against the same allowance. This tool is built for defined contribution pots.
Questions people ask
How much of my pension can I take tax-free?
Usually 25% of each pot you access, but never more than your remaining Lump Sum Allowance of £268,275. So the quarter is the rule up to a pot of £1,073,100; above that the cap takes over and the tax-free figure stops growing. Tax-free cash you have already taken from another pension came out of the same total.
What is the Lump Sum Allowance?
The lifetime total of tax-free cash you can take across all your pensions: £268,275, which is 25% of the old £1,073,100 lifetime allowance. It replaced the lifetime allowance on 6 April 2024 and is frozen rather than rising with inflation, so it quietly tightens each year.
What happens if I take more than the tax-free amount?
The excess is taxed as income in the year you take it, stacked on top of everything else you earn. A large withdrawal can push you into a higher band, and above £100,000 of total income it starts removing your personal allowance at £1 for every £2 — so the effective rate on that stretch is higher than the band on the tin.
Is the tax-free lump sum changing in the Budget?
Nothing has been announced. It comes up in Budget speculation most years and the 2026/27 rules are unchanged at 25% capped at £268,275. The what-if panel above is not a forecast — it exists so you can see how a change of a given size would work, rather than guessing from a headline.
Do I have to take it all at once?
No. Tax-free cash can come out in stages as you move parts of a pot into drawdown, and many schemes also allow lump sums that are 25% tax-free and 75% taxable each time. Each slice uses part of the same allowance.
Will taking a lump sum cut what I can pay in later?
Taking only tax-free cash and moving the rest to drawdown does not by itself trigger the Money Purchase Annual Allowance. Drawing taxable income from a flexible pot does, and that cuts defined contribution contributions to £10,000 a year. This calculator does not model the MPAA.
Are Scottish rates different?
For the taxable part, yes — Scotland has six bands in 2026/27 rather than three. The tax-free lump sum itself is identical UK-wide. Use the Scotland setting so the tax on anything above the tax-free amount is right.
Does this work for a final salary pension?
Not directly. Defined benefit schemes give a lump sum in exchange for giving up annual pension at their own commutation rate, and the tax-free figure comes from the scheme's rules rather than 25% of a pot. It still counts against the same £268,275. This tool is for defined contribution pots.