Answers · UK 2025/26
How much tax-free cash can I take from a £500,000 pension in 2026/27?
From a £500,000 pension in 2026/27 you can normally take 25% tax-free, which is £125,000. The rest is taxed as income when you draw it. The tax-free amount is capped by the Lump Sum Allowance of £268,275, so a £125,000 lump sum is well within that limit.
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When you access a defined contribution pension you can usually take 25% of the pot as a tax-free lump sum, known as the pension commencement lump sum. On a £500,000 pension that is £125,000 of tax-free cash. The remaining £375,000 stays invested and is taxed as income at your marginal rate when you draw it, whether through drawdown or by buying an annuity. The 25% tax-free entitlement is subject to the Lump Sum Allowance, which is £268,275 for 2026/27. Since 25% of £500,000 is £125,000, you are comfortably under that cap and keep the full tax-free amount. You can take the tax-free cash in one go or in stages: each time you crystallise part of your pension, 25% of that slice is tax-free and the rest moves into drawdown. You normally cannot access the pension until age 55, rising to 57 from April 2028. Taking large taxable withdrawals in a single year can push you into the higher or additional rate, so spreading income across tax years is often more efficient. If you take any taxable income beyond the tax-free cash through flexi-access drawdown, you trigger the Money Purchase Annual Allowance, which limits future contributions to £10,000 a year. Defined benefit schemes calculate tax-free cash differently, using a commutation factor rather than a simple 25%. Use the Pension Lump Sum calculator to see your tax-free cash and the tax on the rest.
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This answer is informational only and does not constitute financial, tax or legal advice. Figures are for the 2025/26 UK tax year. See our methodology and sources.