Tax-free pension lump sum allowances

From age 55 (57 from April 2028), you can usually take up to 25% from each of your pensions without paying any tax, provided you: 

• take the money as one or more lump sums (rather than regular income) and 
• do not take more than £268,275 as lump sums in total. 

The £268,275 limit is called the lump sum allowance (LSA) and applies to all your pensions, not to each one. 

This means you’ll only be affected if all your pensions are worth over £1,073,100 in total.  

Example: If you had two untouched pension pots worth £400,000 and £800,000, you could take 25% as tax-free cash from the first pot (£100,000) and 21% from the second (£168,275).   

Your LSA might be higher if you have, or apply for, lifetime allowance protection

If you’re receiving money as a serious ill-health lump sum before you’re 75 (typically if you’re expected to live less than a year), it does not count towards the LSA.

Instead, you might get it all tax-free up to a limit of £1,073,100. This is called the lump sum and death benefits allowance (LSDBA). 

Your LSA should also not reduce if you:  

• take a defined benefit pension in one payment and all your pensions are worth less than £30,000 – called a trivial commutation lump sum 
• take a pension worth £10,000 or less in one payment – called a small pot lump sum 
• receive a lump sum less than £18,000 as your pension scheme is closing – known as a winding up lump sum.  

You’ll usually pay Income Tax on anything above your tax-free Personal Allowance if you take: 

• more than 25% of each pension as a lump sum 
• lump sums above the LSA limit of £268,275 
• your pension as a regular income.  

Each time you take money from your pension, you’ll be asked how much you’ve taken before from all your pensions. Your pension provider will then keep track of how much of the LSA you’ve used. 

For more information about how Income Tax works, see our guide about tax in retirement.

If you’re looking to transfer your pension abroad, an overseas transfer allowance (OTA) will apply. This applies to all transfers since 6 April 2024.   

See our guide about transferring pensions overseas for more information.

When you die, your pension provider will usually pay death benefits to those you want to receive the money, called beneficiaries. 

Your beneficiaries will usually pay Income Tax on the money they receive, if: 

• the death benefit is a regular income directly from your defined benefit pension scheme and/or 
• you die after age 75.  

But no Income Tax is usually paid if: 

• you die before age 75 and 
• the money is taken within two years of your pension scheme learning of your death. 

If no money had been taken from your pension before 6 April 2024, there’s a maximum amount your beneficiaries can take as tax-free lump sums. This is called the lump sum and death benefit allowance (LSDBA).

The LSDBA is set at £1,073,100 and counts all tax-free lump sums taken from your pensions, before and after your death.

This means your beneficiaries will have a lower limit if you’ve already taken tax-free lump sums.  

Example: If your pensions are worth £1,200,000 in total and you die before age 75, your beneficiaries can usually take up to £1,073,100 as a tax-free lump sum. If you’ve already taken £200,000 as a tax-free lump sum while you were alive, your beneficiaries can usually take £873,100 before paying tax.  

If the lump sums to your beneficiaries are higher than the LSDBA, they’ll normally pay Income Tax on the money.  

Your LSDBA might be higher if you already have, or apply for, lifetime allowance protection

Until April 2027, any money you have in your pension pot when you die – or any death benefits your scheme promises to pay – will not usually be counted when calculating Inheritance Tax.   

This is because most pension providers or trustees have the right to decide who to pay the money to, called a discretionary trust. They’ll usually choose those listed on your expression of wish form, but they don’t have to.

If you can tell your pension provider exactly who your beneficiaries should be, the money is usually counted as part of your estate for Inheritance Tax. 

For more information, see our guide What happens to my pension when I die?

If you took money from your pension before 6 April 2024, it counted towards the lifetime allowance (LTA) instead.  

The LTA was the maximum amount you could save into a pension without needing to pay additional tax, calculated whenever you took out pension money. The limit was £1,073,100 when the LTA ended on 5 April 2024.  

Any tax-free lump sums you had taken under the LTA, or before April 2006, count towards the lump sum allowance (LSA) and lump sum death benefit allowance (LSDBA).

Always check your LSA and LSDBA are reduced by the actual amounts of tax-free cash you took.  

This is because pension providers often just take the amount of LTA you used before 6 April 2024, assume you took 25% as tax-free lump sums and reduce your LSA and LSDBA by this amount.  

You can check how much LTA you used by checking statements or asking your pension provider. 

If you took less than 25% as tax-free lump sums, or you took pension money between 6 April 2016 and 5 April 2020 when the lifetime allowance was lower, ask for a transitional tax-free amount certificate. This proves how much you actually received.

Before you take more money from your pension, ask your provider for a transitional tax-free certificate. This should be from the first provider to pay you since 6 April 2024.  

You’ll usually need to provide evidence of the actual amount of tax-free cash you took, such as old pension statements.   

You can then show the certificate to other pension providers you’d like to take money from. They’ll use the tax-free cash figure shown on the certificate, rather than assuming you’ve taken the maximum 25%.

Until 5 April 2025, there are two ways to increase your LSA up to £312,500 and your LSDBA up to £1,250,000. Your allowances might be higher if you already have lifetime allowance protection in placeOpens in a new window

You can apply for individual protection 2016 on GOV.UKOpens in a new window if: 

• your pensions were worth over £1 million on 5 April 2016 and 
• you do not have primary protection or individual protection 2014. 

This increases your LSDBA to £1,250,000 or the value of your pensions on 5 April 2016 if lower. Your LSA is then 25% of this amount. You can continue saving into a pension. 

You can apply for fixed protection 2016 on GOV.UKOpens in a new window if: 

• you have not saved into a pension or built-up benefits since 6 April 2016 and 
• you do not have primary protection, enhanced protection or fixed protection 2012/2014.  

This increases your LSA to £312,500 and your LSDBA to £1,250,000. 

For more help, or to apply by phone, call the HMRC Pensions helpline on 0300 123 1079.  

If you think you or your beneficiaries might be affected by the LSA or LSDBA, consider getting advice from a regulated financial adviser before making any decisions. 

Our tool can help you find a retirement adviser or see our guide Choosing a financial adviser for more information.