How much tax will you pay on your pension lump sum in 2026/27? See the tax-free 25% and the income tax due on the taxable portion using the latest UK tax bands.
8 min readUpdated April 2026
When you take a lump sum from a defined contribution pension, up to 25% is tax-free (subject to the £268,275 Lump Sum Allowance). The remaining 75% is taxed as income at your marginal rate — on top of any other income that tax year.
Taking a large lump sum can push you into a higher tax band. The calculator below shows exactly how much tax HMRC will take and your net amount.
Pension Lump Sum Tax Calculator (2026/27)
How much will HMRC take from your pension lump sum?
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Tax breakdown
Tax due on lump sum
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You receive (net)
£0
Uses 2026/27 UK income tax bands. Lump Sum Allowance £268,275 caps tax-free cash. Excludes Scottish income tax (slightly different bands). Guidance only.
How pension lump sum tax works
Two key thresholds apply:
Lump Sum Allowance (LSA): £268,275. This is the maximum tax-free cash you can take across all your pensions in your lifetime.
Income tax bands (2026/27): £12,570 personal allowance (taxed at 0%), then 20% to £50,270, then 40% to £125,140, then 45% above. Personal allowance tapers from £100,000.
Watch out: Taking a £100,000 taxable lump sum in one go on top of a £40,000 salary can push you into the 40% and even 45% band. Spreading withdrawals across tax years can save thousands.
Emergency tax on first withdrawal
HMRC often applies an emergency tax code to your first pension withdrawal, taxing the lump sum as though you'd take it every month. You'll typically reclaim the overpaid tax in the same year via form P55, P53Z or P50Z.
Frequently Asked Questions
25% of your pot is tax-free, up to a Lump Sum Allowance of £268,275 across all your pensions. The remaining 75% is taxed as income at your marginal rate.
No, not from defined contribution pensions. Some older protected schemes have higher tax-free entitlements. Some defined benefit schemes can pay more via commutation.
Yes, often. Adding £50,000+ of taxable pension to your existing income can move you from basic rate (20%) to higher rate (40%). The calculator above shows the impact.
If you've already taken pension income that tax year, your provider should have your tax code. For a first withdrawal, ask the provider to use a current code or claim a refund using P55 (drawdown), P53Z (taken whole pot, working) or P50Z (taken whole pot, not working).
Often yes. Spreading withdrawals over multiple tax years uses your personal allowance and basic-rate band each year, saving substantial tax versus a single large lump sum.
Yes. The decision is irreversible and the tax impact is significant. An FCA-regulated adviser can model different withdrawal strategies and recommend the most tax-efficient approach.
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