Autumn Budget on 28 October 2026. The Chancellor could change some of these rules. We will re-check this page in the week after the Budget and update the date below.
In 30 seconds
- You can usually take up to 25% of a pension tax-free, capped at £268,275 across all your pensions.
- You can take it all at once, or a slice of each withdrawal, so part of every payment is tax-free.
- Taking only the tax-free cash does not trigger the £10,000 money purchase annual allowance. Taking taxable income flexibly does.
- The earliest age is normally 55, rising to 57 on 6 April 2028.
Key figures
The rule in one paragraph
From the minimum pension age, you can usually take up to 25% of a defined contribution pension, such as a personal pension, SIPP or most workplace pensions, without paying income tax. Across all your pensions, the most you can take tax-free in your lifetime is the lump sum allowance of £268,275. Everything else you take out is taxed as income in the year you take it.
The minimum pension age is normally 55. It rises to 57 on 6 April 2028, unless your scheme gives you a protected lower age.
Two ways to take it
1. All the tax-free cash at once
You move your pot into drawdown and take the full 25% as a lump sum. The other 75% stays invested. You can leave it untouched, or take taxable income from it whenever you like.
On a £200,000 pot, that is £50,000 tax-free on day one and £150,000 left invested. Our drawdown guide explains how to make the rest last.
2. A slice of each withdrawal
You take money out in stages, and 25% of each withdrawal is tax-free. You can do this by moving part of the pot into drawdown at a time, or by taking "uncrystallised funds pension lump sums" (UFPLS), where each payment is a quarter tax-free and three-quarters taxable.
On the same £200,000 pot, taking £20,000 a year would give you £5,000 tax-free and £15,000 taxable each year. If you have little other income, much of that £15,000 can fall within your £12,570 Personal Allowance.
Side by side
| All at once | In stages | |
|---|---|---|
| Good for | A big one-off cost: clearing a mortgage, helping family, a home adaptation | Topping up income over many years |
| Investment growth | The cash leaves the pension, so it no longer grows tax-free inside it | Unused tax-free cash stays invested and can grow, so 25% of a bigger pot later |
| Income tax | None on the lump sum; tax only when you take the rest | Lets you blend tax-free and taxable money to keep your tax bill low each year |
| Main risk | Cash sitting in a bank loses value to inflation | Rules on tax-free cash could change before you use it |
Three traps to know about
Emergency tax on your first taxable withdrawal
When you first take taxable money, your provider may not have your correct tax code. It then uses an emergency code that can treat a one-off payment as if you will receive it every month, and take far too much tax.
You get the money back. You can claim it from HMRC straight away, or wait for HMRC to correct it after the end of the tax year. This only affects taxable withdrawals, not the tax-free part.
The money purchase annual allowance (MPAA)
Once you take taxable money flexibly from a defined contribution pension, for example income from drawdown or a UFPLS payment, the most you can pay into defined contribution pensions each year with tax relief usually drops from £60,000 to £10,000.
Taking only the tax-free cash and leaving the rest in drawdown untouched does not trigger it. If you are still working and paying into a pension, this difference matters.
Taking cash you don't need
Some people take the tax-free cash simply because they can, and leave it in a current account. Inside the pension it could keep growing free of tax. Outside, interest on savings above your Personal Savings Allowance is taxed, and from April 2027 the savings tax rates rise by two percentage points.
What changes with inheritance tax in 2027
Until now, leaving money inside your pension was often the best way to pass it on, because most pensions sat outside inheritance tax. For deaths from 6 April 2027, most unused pensions count as part of your estate. Our guide to the 2027 change explains how.
This has led some people to ask whether they should take more out sooner. Two points to weigh up:
- Taking money out does not, by itself, remove it from your estate. Cash in your bank account counts for inheritance tax too. It only leaves the estate if you spend it or give it away, and most gifts still count if you die within seven years.
- If your estate is well within the allowances, nothing changes for you. A single person can usually leave £325,000, or up to £500,000 with a home going to children, without inheritance tax. More if a late partner's allowances transfer.
For larger estates the order you spend your money in may change, but that is a decision to make with a regulated adviser, not on the strength of a rule change alone.
Before you decide
- Book a free Pension Wise appointment if you are 50 or over. It is impartial, government-backed guidance about your options. Book on MoneyHelper.
- Check for a protected tax-free amount. Some older pensions allow more than 25% tax-free. Ask your provider before you transfer or take anything, because transferring can lose it.
- Check for guarantees. Some older pensions come with a guaranteed annuity rate that is far better than today's. Taking cash may give it up.
- Beware of scams. No genuine firm will cold-call you about your pension. Pension cold-calling is illegal in the UK.
See how your pension affects inheritance tax from 2027Free, no sign-up, nothing you type leaves your browser.
Open the calculatorCommon questions
Do I have to take the tax-free cash when I first access my pension?
With drawdown, you take the tax-free cash when you move money into drawdown, and you can move it in stages. Once moved, the rest stays invested and taxable when withdrawn.
Is it worth taking the lump sum to pay off a mortgage?
Often it is, because mortgage interest is usually higher than what cash earns. But compare the interest rate with what the money might grow by inside the pension, and keep an emergency fund.
Will taking the lump sum avoid inheritance tax from 2027?
Not by itself. Cash you take out and keep still counts as part of your estate. It only leaves your estate if you spend it or give it away, and gifts can still count for seven years.
What is emergency tax on a pension withdrawal?
When you first take taxable money, the provider may use an emergency tax code and take too much tax. You can claim it back from HMRC straight away or wait for it to be corrected at the end of the tax year.
Sources
This guide is general information, not personal financial advice. Rules can change and your situation may differ. For free, impartial help, contact MoneyHelper, or speak to a regulated financial adviser.
