Pension Tax-Free Cash Calculator United Kingdom

For most defined contribution pensions, a quarter of the pot can be taken tax-free, up to a lifetime limit. This calculator applies the 25% rule and the £268,275 Lump Sum Allowance to your pot for 2026/27, and shows how much is left to be taxed as income when you draw it.

The 25% tax-free rule

When you first access a defined contribution pension, from age 55 (rising to 57 from April 2028), you can normally take 25% of the pot as a tax-free lump sum, the pension commencement lump sum. The remaining 75% stays invested and is taxed as income only when you withdraw it. A £400,000 pot gives £100,000 tax-free, with £300,000 left as a taxable pot.

Taking tax-free cash crystallises that part of the pension, and it cannot be reversed. You do not have to use the money for anything in particular, and it is tax-free whether you spend, save or invest it. Moving a large sum out of the pension into a savings account can expose future returns to tax, though, so many people take only what they have a clear use for, such as clearing a mortgage, and leave the rest invested tax-free in the pension.

The Lump Sum Allowance cap

Since April 2024 the total tax-free cash you can take across all your pensions is capped by the Lump Sum Allowance of £268,275, exactly 25% of the old £1,073,100 lifetime allowance. That is why the cap applies once a single pot reaches about £1.073 million. Above that, the calculator limits tax-free cash to the allowance and treats the rest as taxable: a £1.5 million pot still gives only £268,275 tax-free, not £375,000.

The allowance covers all your pensions, so if you have already taken tax-free cash elsewhere, less remains for this one. Some people hold higher protected allowances from earlier lifetime allowance regimes, which this tool does not model, so anyone with substantial pension savings should check their protection certificates.

What happens to the taxable pot

The part that is not tax-free, 75% or more once the cap applies, is taxed as income at your marginal rate when you draw it, through flexi-access drawdown or an annuity. You control the timing, so spreading withdrawals across several tax years can keep you in lower bands, while one large withdrawal can push you into the higher or additional rate. The calculator does not work out that future tax; it separates the tax-free and taxable parts so you can plan.

A worked example

A £400,000 pot gives 25%, £100,000, well within the £268,275 allowance, so you can take the full £100,000 tax-free and leave £300,000 as a taxable pot. A £1,500,000 pot would give £375,000 at 25%, but the Lump Sum Allowance caps the tax-free cash at £268,275, 17.9% of the pot, leaving £1,231,725 to be drawn as taxable income.

Common mistakes to avoid

• Taking the whole 25% at once with no plan, so the money sits in a taxable savings account earning less than it would in the pension.
• Assuming the taxable 75% is taxed immediately. It is not, and drawing it all in one year is what causes a large tax bill.
• Expecting a flat 25% on a large pot and overlooking the Lump Sum Allowance.
• Forgetting that the allowance is shared across all your pensions, including any you have already taken cash from.
• Applying the 25% of pot rule to a defined benefit scheme, which uses its own commutation formula.

How to read your result

The tax-free figure is a maximum, not an instruction: you can take less, and often should. If the percentage shown is below 25%, the allowance cap is applying. Use the taxable pot figure as the starting point for a drawdown plan that spreads income across tax years to stay in lower bands. Pension tax rules change and mistakes are hard to undo, so discuss the result with an adviser before deciding.

Assumptions and limitations

This is a planning estimate, not advice. It uses the 25% tax-free fraction and the £268,275 Lump Sum Allowance, both stored as parameters sourced from gov.uk and reviewed each tax year. It assumes a standard defined contribution pot with no protected tax-free cash entitlement, no earlier crystallisations already using your allowance and no transitional protections. It does not model the Income Tax on the taxable pot, the minimum pension age or defined benefit schemes. Check current HMRC guidance or speak to a regulated adviser before acting.

About This Pension Tax Free Cash Calculator

Use this pension tax free cash calculator to get an instant, accurate estimate. The figures follow official GOV.UK guidance and every rate and threshold is kept up to date for 2026. Adjust the inputs above to match your situation, or browse all our calculators to plan your next step.