Tax-free lump sum calculator
25% of a pension pot can normally be taken as a tax-free lump sum, capped at the £268,275 lump sum allowance, under gov.uk's rules on tax when a pension is received. On a £400,000 pot, that is £100,000 tax-free. Anything above the allowance is taxed as income at the marginal rate.
How much of my pension is tax-free?
When a defined-contribution pension is first accessed, a quarter of it can normally be drawn free of income tax, under gov.uk's rules on tax when a pension is received. This is often called the pension commencement lump sum. The cap on it is the lump sum allowance, £268,275, which is the most tax-free cash that can be taken across all pensions held in a lifetime, as set out in gov.uk's pension schemes rates and allowances guidance. That figure is a quarter of the old £1,073,100 lifetime allowance, and it has been frozen since April 2024.
What would a worked example look like?
On a £400,000 pot, 25% is £100,000. That is well under the £268,275 allowance, so the whole £100,000 comes out tax-free. The remaining £300,000 stays invested and is taxed as income only when it is drawn. Tax on the lump sum itself would only apply if 25% of combined pots came to more than £268,275, which needs pots of over about £1.07 million.
What happens if I go above the allowance?
If the tax-free entitlement would breach the allowance, the part above it does not vanish, but it is taxed as income at the marginal rate rather than paid tax-free, following gov.uk's rules on tax when a pension is received. For most people this never bites. It matters mainly for large pots, or where earlier lump sums have already used up much of the allowance.
Common questions
How much of my pension is tax-free?
You can normally take 25% of a pension pot as a tax-free lump sum, up to the lump sum allowance of £268,275 across all your pensions. On a £400,000 pot that is £100,000.
What is the lump sum allowance?
It is the total tax-free cash you can take from all your pensions in your lifetime, frozen at £268,275 since April 2024. Once you have taken that much tax-free, any further lump sums are taxed as income, even if 25% of the pot would be more.
Do I have to take the whole 25% at once?
No. You can take the tax-free cash in stages, a portion each time you make a withdrawal, or all at once. Taking it gradually can suit people who want to keep more of the pot invested, but the total tax-free amount is the same either way.
Is the tax-free lump sum really tax-free?
Yes, the 25% within the allowance has no income tax and no National Insurance. The other 75% stays in your pension and is taxed as income when you draw it later. Anything above the allowance is taxed as income at your marginal rate.
What would a worked example look like?
On a £400,000 pot, 25% works out at £100,000, well under the £268,275 lump sum allowance, so the whole amount comes out tax-free. The remaining £300,000 stays invested and is only taxed as income once it is drawn from the pension in a later tax year.
What happens if I go above the allowance?
The part of a tax-free entitlement that breaches the lump sum allowance is not lost, but it is taxed as income at the marginal rate instead of being paid tax-free, under the gov.uk rules on tax when a pension is received. This mainly affects large pension pots or people who have already used up much of the allowance from an earlier pension.
Sources & Rate Verification
Rates verified against official statutory guidance on 6 September 2026.