Answers · UK 2025/26
Is the 25% pension lump sum tax-free?
Yes, up to a lifetime limit. You can take 25% of your pension pot tax-free, subject to the Lump Sum Allowance of £268,275 across all pensions.
Full answer
When you access a defined contribution pension, you can usually take up to 25% as a Pension Commencement Lump Sum (PCLS) free of income tax. However, following the abolition of the Lifetime Allowance, a new Lump Sum Allowance of £268,275 applies from 2024/25 onwards. Once your total tax-free lump sums across all pension schemes reach £268,275, any further lump sums become fully taxable as income. The remaining 75% of the pension pot is taxed as income in the year it is drawn. For defined benefit (final salary) schemes, the tax-free cash is calculated differently using a 20:1 commutation factor. Taking a large lump sum in one tax year could push you into a higher tax band, so phased withdrawals are often more tax-efficient.
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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.