Answers · UK 2025/26
How does a pension sharing order work in divorce and is the transfer taxed in 2026/27?
A pension sharing order gives one spouse a percentage of the other's pension as a "pension credit", legally splitting it at divorce. The transfer itself is not taxed in 2026/27 — no income tax or CGT applies. Tax only arises later when you draw the pension, taxed as income.
Full answer
A pension sharing order (PSO) is one of three ways courts divide pensions on divorce or dissolution of a civil partnership, alongside pension offsetting and pension attachment. With a PSO, the court orders that a percentage of one party's pension is transferred to the other as a "pension credit". This achieves a clean break: the receiving spouse gains their own pension rights, either kept inside the same scheme (an internal transfer) or moved to a separate arrangement such as a personal pension or SIPP (an external transfer). The transfer triggered by a pension sharing order is not a taxable event in 2026/27. No income tax is due on the movement of funds, and Capital Gains Tax does not apply because pensions sit outside the CGT regime. Crucially, the pension credit does not count against the recipient's Annual Allowance (£60,000) and is not treated as a contribution, so it cannot trigger an annual allowance charge however large the share. Tax only bites later, when each party draws their pension: usually 25% can be taken tax-free (capped at the lump sum allowance of £268,275), with the remainder taxed as income at your marginal rate — 20%, 40% or 45% in England, Wales and Northern Ireland. A regional note: pension sharing applies UK-wide, but Scotland differs in practice. Scottish law generally only counts the pension built up during the marriage (between the wedding and the date of separation), often producing a smaller shareable amount than in England and Wales, where the whole pension can be considered. When the recipient eventually draws income, Scottish Income Tax rates apply if they are a Scottish taxpayer (starter, basic, intermediate 21%, higher 42%, advanced 45% and top 48%). The state pension cannot be shared, but the additional State Pension (where it exists) can. Always obtain a Cash Equivalent Transfer Value and, for defined benefit pensions over £30,000, regulated financial advice is mandatory.
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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.