Pension Lump Sum Tax Calculator

Q: What is the difference between PCLS, UFPLS, and full withdrawal?

PCLS takes 25% tax-free as a lump sum with the rest moving into drawdown (taxed on withdrawal). UFPLS takes money directly — 25% of each withdrawal is tax-free, 75% is taxed. Full withdrawal takes everything at once — 25% tax-free, 75% taxed as income in one year, which can push you into higher tax bands.

Q: What is the Money Purchase Annual Allowance (MPAA)?

The MPAA limits future pension contributions to £10,000/year once you flexibly access your pension. It is triggered by taking UFPLS payments or drawdown income, but not by taking a PCLS alone. This matters if you are still working and contributing to a pension.

Calculate the tax on your pension lump sum for 2025/26. Compare PCLS, UFPLS, and full withdrawal options. Check for emergency tax overpayment and see whether to take your pension now or leave it for inheritance.

Calculate the tax on your pension lump sum withdrawal

Pension pot value

Total value of the pension you want to access

Withdrawal type

How you want to take your pension

Other annual income

State pension, employment, rental income etc.

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How to Use This Calculator

Lump Sum Tax tab

Enter your pension pot value, choose your withdrawal type (PCLS + drawdown, UFPLS, or full withdrawal), and add your other annual income. The calculator shows your tax-free portion (25%, capped at the £268,275 Lump Sum Allowance), the income tax due on the taxable amount at marginal rates, and your net amount received. It also flags the MPAA trigger and warns if you are pushed into higher tax bands.

Emergency Tax Warning tab

Enter your planned withdrawal amount and toggle whether your provider has your tax code. If they do not, the calculator shows the emergency tax deducted using Month 1 basis (only 1/12th of your personal allowance), how much you will overpay, and which HMRC form to use to reclaim it (P55, P53, or P50Z).

Take Now vs Leave (IHT) tab

Compare two strategies: taking your pension as a lump sum now (paying income tax but removing it from your estate) versus leaving it in the pension (no income tax but subject to IHT from April 2027 at 40%). Enter your pension pot, age, other income, and estate value to see which option leaves more for your beneficiaries.

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The Formula

Pension lump sum tax is calculated by adding the taxable portion to your other income and applying marginal income tax rates:

Tax-Free Amount = min(Pension Pot × 25%, Lump Sum Allowance £268,275)

Taxable Amount = Pension Pot − Tax-Free Amount

Combined Income = Other Annual Income + Taxable Amount

Income Tax = sum of:
• £0 – £12,570: 0% (Personal Allowance)
• £12,571 – £50,270: 20% (Basic Rate)
• £50,271 – £125,140: 40% (Higher Rate)
• Above £125,140: 45% (Additional Rate)

Net Received = Pension Pot − Income Tax on Pension Portion

Emergency Tax (Month 1): Annual bands ÷ 12 applied to single month

The key risk is that a large lump sum withdrawal, combined with your other income, pushes you into higher tax bands. For example, someone with £15,000 state pension income who withdraws £100,000 will have a combined taxable income of £90,000 — well into the 40% band.

The personal allowance tapers above £100,000 income (£1 lost per £2 over £100,000), creating an effective 60% marginal rate between £100,000 and £125,140.

Example

Margaret — Retired Teacher, 66, Bristol

Margaret has a £150,000 defined contribution pension pot and receives a state pension of £11,500/year. She wants to understand her options for accessing the pension.

Lump Sum Tax tab (PCLS + Drawdown)

Pension pot£150,000

Withdrawal typePCLS + Drawdown

Other annual income£11,500

Tax-free lump sum (PCLS)£37,500

Remaining in drawdown£112,500

Income tax now£0

Margaret takes £37,500 tax-free and leaves £112,500 in drawdown. She can then draw income from drawdown each year, controlling the amount to stay within the basic rate band.

Emergency Tax Warning tab

If Margaret withdraws £20,000 from her pension without giving her provider her tax code:

Withdrawal£20,000

Emergency tax deducted~£2,604

Actual tax due~£486

Overpayment to reclaim~£2,118

Margaret would overpay roughly £2,118 under emergency tax. She can reclaim this using form P55 since she has money remaining in her pension.

FAQ

How much of my pension can I take tax-free? ▼

You can take 25% of your pension pot tax-free, subject to the Lump Sum Allowance (LSA) of £268,275 for 2025/26. This is a lifetime limit that applies across all your pensions. For most people with pots under ~£1,073,100, the 25% rule applies in full. If your 25% exceeds £268,275, the tax-free amount is capped at £268,275 and any excess is taxed as income.

What is emergency tax and how do I avoid it? ▼

Emergency tax is applied when your pension provider does not have your correct tax code from HMRC. They use a "Month 1" basis, which means they only allow 1/12th of the annual personal allowance (£1,047.50 per month) and apply tax bands as if your single withdrawal is a monthly salary. This almost always results in overpaying tax. To avoid it, contact your pension provider at least 2-3 weeks before withdrawing and ask them to obtain your tax code from HMRC. If you are already overtaxed, you can reclaim using HMRC forms P55, P53, or P50Z.

What is the difference between PCLS, UFPLS, and full withdrawal? ▼

PCLS (Pension Commencement Lump Sum): Take 25% tax-free as a lump sum and move the remaining 75% into drawdown. You pay no tax on the PCLS and only pay income tax when you later withdraw from drawdown. UFPLS (Uncrystallised Funds Pension Lump Sum): Take money directly from your pension — 25% of each withdrawal is tax-free and 75% is taxed as income. Good for taking money in stages. Full withdrawal: Take the entire pot — 25% tax-free and 75% taxed as income in one tax year. This can push you into higher tax bands and is usually the least tax-efficient option for large pots.

What is the Money Purchase Annual Allowance (MPAA)? ▼

The MPAA is triggered when you flexibly access your pension (e.g., taking a UFPLS or withdrawing from drawdown). Once triggered, the maximum you can contribute to money purchase pensions and receive tax relief drops from £60,000 to £10,000 per year. Taking a PCLS alone does not trigger the MPAA — it is only triggered when you take taxable income from a flexible pension arrangement. This is an important consideration if you are still working and contributing to a pension.

Will my pension be subject to inheritance tax from April 2027? ▼

Yes. The Autumn Budget 2024 announced that from April 2027, unused pension funds will be included in your estate for Inheritance Tax (IHT) purposes. Currently, pensions are outside the estate — if you die before 75, beneficiaries receive them completely tax-free; after 75, they pay income tax at their marginal rate but no IHT. From April 2027, pensions will be subject to 40% IHT on any amount above the nil-rate band (£325,000 NRB + £175,000 RNRB = £500,000 per person). This is a major change that may affect your decision on when to access your pension.

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