Tax-free lump sum (PCLS).
Tax-free lump sum
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Remaining pot (taxable when drawn)
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Your breakdown
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The quarter you can take without tax
When you start taking a defined contribution pension, you can normally withdraw 25% of the pot as a tax-free lump sum. The formal name is the Pension Commencement Lump Sum, and the tax-free amount is now capped by the lump sum allowance of £268,275. The remaining 75% stays in your pension and is taxed as income whenever you draw it. This tool takes your pot value and returns the tax-free cash plus the taxable remainder, applying the cap where it bites. It is aimed at people at the point of accessing a pension who want a clear figure before they commit.
A £400,000 pot worked through
Take the default £400,000 pot. A quarter of that is £100,000, which is well under the £268,275 cap, so the full £100,000 comes out tax-free. The other £300,000 stays invested and will be taxed as income as and when you withdraw it.
The cap is irrelevant here because 25% of £400,000 falls a long way below £268,275. The chart shows the simple split: the tax-free quarter against the taxable three-quarters.
When the cap finally starts to matter
Because the allowance is a fixed £268,275, the 25% rule only stops being a flat quarter once 25% of the pot would exceed that figure. That happens at a pot of roughly £1,073,100. Above that, the tax-free cash is frozen at £268,275 and the tax-free percentage of the whole pot slips below 25%. Type a pot of £1.4 million into the field and you will see the lump sum hold at £268,275 rather than rising to £350,000. Most savers will never reach this ceiling, but anyone with a large pot, or with several pensions that add up, should check the combined figure rather than assuming a clean quarter on each.
Decisions around taking it
You do not have to take the whole 25% at once. With phased drawdown you can crystallise the pot in slices and take 25% of each slice tax-free as you go, which keeps more of your money invested and can be more tax-efficient than a single large withdrawal. The biggest mistake I see is people taking the full lump sum simply because it is available, parking it in a low-interest savings account, and losing both the tax-sheltered growth inside the pension and any future investment return. Worse, once that cash sits in an ordinary account, any interest it earns becomes taxable and the money is dragged into your estate for inheritance tax, neither of which applied while it stayed in the pension. A practical tip: if you have older pensions, check whether any carry protected tax-free cash above 25% or a protected lump sum allowance from before the rules changed, because giving those up by transferring can be an expensive and irreversible error. Taking even one pound of tax-free cash also starts the clock on accessing the rest of that pension, so do not trigger it before you genuinely need the money.
Points people check
Can I take 25% from a final salary pension?
Defined benefit schemes work differently. They pay a guaranteed income and usually offer a tax-free lump sum by giving up, or commuting, part of that income at a set conversion rate. The amount and the value-for-money of that trade vary by scheme, so the flat 25%-of-a-pot logic this tool uses does not map directly onto a final salary pension. Check your scheme's specific commutation terms.
Is the tax-free cash really tax-free, or just deferred?
It is genuinely free of Income Tax, not deferred. The 25% lump sum is one of the most valuable features of UK pensions precisely because that slice never gets taxed at all, whereas the remaining 75% is taxed when drawn. That asymmetry is the core reason pensions often beat other wrappers for retirement saving.