Answers · UK 2025/26
Is my pension lump sum taxed in the UK?
The first 25% of each pension pot is tax-free (subject to lifetime LSA cap of £268,275). The remaining 75% is taxable at your Income Tax marginal rate when withdrawn. Death-benefit lump sums may also be tax-free under LSDBA cap of £1,073,100.
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UK pension lump sum tax 2025/26. Lifetime tax-free cash: 25% of each DC pot, subject to LSA £268,275 (equivalent to 25% of old £1,073,100 LTA). Excess: taxed at marginal Income Tax rate. Taxable 75%: when drawn (drawdown, UFPLS, annuity), taxed at marginal rate. Death benefits before 75: lump sum tax-free up to LSDBA £1,073,100. After 75: taxed at beneficiary's marginal rate. From April 2027: pensions enter IHT estate — additional 40% IHT possible for after-75 deaths. Combined could reach ~64% for higher-rate beneficiaries. DB pensions: usually 25% commutable as cash at retirement via scheme commutation factor.
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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.