Tax on your private pension contributions
Lump sum allowance
You can usually take up to 25% of the amount built up in any pension as a tax-free lump sum. The most you can take is £268,275. This is known as a lump sum allowance.
You or your beneficiaries may be able to take a tax-free lump sum of up to £1,073,100 in certain circumstances.
For example, if you take a lump sum due to serious illness or your beneficiaries are paid certain lump sum death benefits. This is known as a lump sum and death benefit allowance.
If you take a lump sum that goes above your allowances, you’ll need to pay Income Tax on the extra amount.
Your pension provider will take off the charge before you get your payment.
If you hold a protected allowance, this may increase the amount of tax-free lump sums you can take from your pensions.
Check how much lump sum allowance you’ve used
Ask your pension provider how much you’ve used of:
-
your lump sum allowance
-
your lump sum and death benefit allowance
You must add up how much of your allowances you’ve used in all the pension schemes you’re in.
What counts towards your lump sum allowance
It depends on the type of lump sum taken.
It counts towards your lump sum allowance if you take any of the following:
- a pension commencement lump sum
- an uncrystallised funds pension lump sum (the 25% tax-free part)
- a standalone lump sum
It counts towards your lump sum and death benefit allowance if you take either of the following:
- a serious ill-health lump sum
- certain lump sum death benefits paid to your beneficiaries
Any lump sum that counts towards your lump sum allowance will also count towards your lump sum and death benefit allowance.
Protect your lifetime allowance
The lifetime allowance was abolished on 6 April 2024. If you had pension savings before April 2016, you may be able to apply to protect your lifetime allowance from when it was reduced in April 2016.
This protection also applies to your lump sum allowance and lump sum and death benefit allowance.
If your pension scheme allows you to take your pension before you’re 50
You may have a lump sum allowance or lump sum and death benefit allowance. You must have joined the pension scheme before 2006.
This only applies to people in certain jobs (for example professional sports, dance and modelling) who start taking their pension before they’re 55.
Your lump sum allowance or lump sum and death benefit allowance is not reduced if you’re in a pension scheme for uniformed services - for example the armed forces, police and fire services.