What is the Lump Sum Allowance? The £268,275 cap on tax-free cash
Figures correct for the 2026/27 tax year. Last checked against GOV.UK, HMRC and MoneyHelper on .
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Short answer
What is the Lump Sum Allowance?
The Lump Sum Allowance is the most tax-free cash most people can take from their pensions over their lifetime, £268,275 from April 2024. It replaced the lifetime allowance as the limit on the usual 25% tax-free lump sum. Cash taken above it is taxed as income, and some people have a higher figure through protections.
Open this example in the planner.In this example, Morgan takes tax-free cash in one go at 61, in 2028/29. A quarter of the pension would be £306,249, but tax-free cash is capped at the £268,275 Lump Sum Allowance, which is paid into cash. Amounts are in each year's prices. Morgan is an invented example, and the chart is an illustration of the planner's arithmetic, not a forecast.
Assumes 2.5% inflation a year and steady growth of 5% a year on pensions, and 3% on cash and the home, before charges. Tax rules are those for 2026/27 and later years as now legislated, and can change. Real returns vary, and the value of investments can go down as well as up.
Open this example in the plannerDownload Morgan's example plan (a JSON file: in the planner, choose File, then Open a saved file)
Key facts
- The Lump Sum Allowance (LSA) is £268,275 for most people. It applies from 6 April 2024 and is a lifetime limit across all of a person's pensions.
- Tax-free cash is normally up to 25% of the pension, so the LSA is reached at a pension worth £1,073,100 if all of it is taken as the usual 25% lump sum.
- Tax-free cash can be taken in one go or in stages, and each amount taken uses up part of the allowance, including tax-free cash from a defined benefit pension.
- Lump sums above the remaining allowance are taxed as income at the person's marginal rates.
- A second limit, the Lump Sum and Death Benefit Allowance of £1,073,100 for most people, covers tax-free lump sums and certain lump sum death benefits together.
- Some people have a higher allowance because of a pension protection.
The Lump Sum Allowance, often shortened to LSA, is a lifetime limit of £268,275, for most people, on the tax-free cash that can be taken from pensions. Up to 25% of a pension can normally be taken tax-free, and every tax-free lump sum counts towards the allowance until it is used up. This guide describes the rules; it does not say how anyone should take their pension.
What does the Lump Sum Allowance cover?
Most people can take up to 25% of a pension as a tax-free lump sum. The Lump Sum Allowance sets a ceiling on the total of those lump sums across all of a person's pensions, over their lifetime. It is £268,275 for most people. GOV.UK lists what counts towards it: a pension commencement lump sum, the 25% tax-free part of an uncrystallised funds pension lump sum, and a standalone lump sum.
How is the allowance used up?
Each time tax-free cash is paid, the amount counts against the allowance. That includes tax-free lump sums from defined benefit pensions as well as tax-free cash from defined contribution pots.
| Pension value | 25% of the pension | Tax-free cash within the allowance |
|---|---|---|
| £200,000 | £50,000 | £50,000 |
| £600,000 | £150,000 | £150,000 |
| £1,073,100 | £268,275 | £268,275 |
| £1,500,000 | £375,000 | £268,275 |
The table assumes the whole allowance is unused. Where some has already been used, the amount available is lower.
Can tax-free cash be taken in stages?
Yes, where the pension scheme offers it. MoneyHelper explains that a pension can be moved into drawdown in one go or gradually, often called phased or partial drawdown, and that 25% of each lump sum taken from a pension that has not been accessed is tax-free. Either way, the tax-free cash from a pension cannot be more than 25% of it, and the total from all pensions cannot be more than the allowance left.
Taking tax-free cash in stages uses the allowance up a piece at a time instead of all at once. In the example below, the planner takes it as money is needed, so the allowance lasts for several years.
Open this example in the planner.In this example, Morgan takes tax-free cash as money is needed, not in one go. In 2028/29, at 61, £18,178 of tax-free cash is taken and £250,097 of the Lump Sum Allowance is left for later years. Tax-free cash is taken in 7 tax years, and the allowance is used up in 2034/35, at 67. Amounts are in each year's prices. Morgan is an invented example, and the year detail is an illustration of the planner's arithmetic, not a forecast.
Assumes 2.5% inflation a year and steady growth of 5% a year on pensions, and 3% on cash and the home, before charges. Tax rules are those for 2026/27 and later years as now legislated, and can change. Real returns vary, and the value of investments can go down as well as up.
Open this example in the plannerDownload Morgan's example plan (a JSON file: in the planner, choose File, then Open a saved file)
What is the Lump Sum and Death Benefit Allowance?
The Lump Sum and Death Benefit Allowance (LSDBA) is a second limit, £1,073,100 for most people. It covers tax-free lump sums paid during a person's life and certain lump sum death benefits paid to their beneficiaries, taken together. Serious ill-health lump sums and certain lump sum death benefits count towards it, and so does any lump sum that counts towards the Lump Sum Allowance. Income tax is due on lump sums above it. What happens to a pension when a partner dies? covers how death benefits are taxed.
What happens if more than the allowance is taken?
A lump sum above the remaining allowance is not tax-free. It is added to the person's other income for the year and taxed at their marginal rates. There is no longer a separate lifetime allowance charge.
Open this example in the planner.In this example, Morgan takes £268,275 of tax-free cash in 2028/29, at 61: the whole Lump Sum Allowance, so none of it is left. Taking tax-free cash on its own does not trigger the Money Purchase Annual Allowance. Amounts are in each year's prices. Morgan is an invented example, and the year detail is an illustration of the planner's arithmetic, not a forecast.
Assumes 2.5% inflation a year and steady growth of 5% a year on pensions, and 3% on cash and the home, before charges. Tax rules are those for 2026/27 and later years as now legislated, and can change. Real returns vary, and the value of investments can go down as well as up.
Open this example in the plannerDownload Morgan's example plan (a JSON file: in the planner, choose File, then Open a saved file)
What this looks like in the planner
The planner gives each person the full allowance to start with. The remaining amount can be lowered if some has been used, or raised, for example if a protection applies. The allowance then limits the tax-free cash taken under whichever of the three methods is chosen: in one go, a quarter of each withdrawal, or as money is needed. Pension drawdown, tax-free cash and the State Pension describes the methods.
Morgan's invented example shows two of them with everything else the same:
- In one go. The picture at the top is the Wealth view in each year's prices. A quarter of Morgan's pension would be more than the allowance, so the tax-free cash is capped at £268,275 and paid into cash, which then funds spending for several years.
- As money is needed. The Tax view shows the allowance left after each year, and that it is used up in 2034/35, at 67.
Open Morgan's example in the planner, or open the as-needed scenario on the Tax view. Neither way of taking tax-free cash is better in general: the planner shows the arithmetic of each for the figures entered, and the right choice for anyone depends on their circumstances. Pension Wise gives free guidance on the options to people aged 50 or over with a defined contribution pension.
Step by step
- Find the value of the pension. Take the current value of the pension pot you are looking at, from the latest statement from the provider.
- Work out 25% of it. Multiply the pot by 0.25. That is the usual upper limit on the tax-free cash from that pot.
- Find the allowance left. Start from £268,275 and take away any tax-free cash already taken from any pension. Providers record the tax-free cash they have paid and can tell you what they hold.
- Compare the two figures. The tax-free cash available is the smaller of the 25% figure and the allowance left. Anything taken above the allowance left is taxed as income.
Frequently asked questions
When did the Lump Sum Allowance start?
It applies from 6 April 2024, when the lifetime allowance was abolished. The tax charge linked to exceeding the lifetime allowance had already been removed from 6 April 2023.
Is the Lump Sum Allowance the same for everyone?
£268,275 applies to most people. Some people have a higher amount because of a protection, and tax-free cash already taken reduces what is left. The figure is a lifetime total per person, not a yearly one.
Can you take 25% tax-free more than once?
Yes, in stages, where the pension scheme offers it. Money can be moved into drawdown in one go or gradually, often called phased drawdown, and 25% of each lump sum taken from a pension not yet accessed is tax-free. The tax-free total from a pension cannot be more than 25% of it, and the total from all pensions cannot be more than the remaining allowance.
What is the Lump Sum and Death Benefit Allowance?
It is a second limit, £1,073,100 for most people, on tax-free lump sums paid in life and certain lump sum death benefits paid to beneficiaries, taken together. Serious ill-health lump sums and certain lump sum death benefits count towards it, and so does any lump sum that counts towards the Lump Sum Allowance. Income tax is due on amounts above it.
What happens to tax-free cash above the allowance?
Any lump sum above the remaining Lump Sum Allowance is taxed as income at the person's marginal rates in the year it is taken, in the same way as other pension income.
Does the Lump Sum Allowance apply to a defined benefit pension?
Yes. A tax-free lump sum from a defined benefit (final salary) pension also uses up the allowance, so it counts alongside tax-free cash from defined contribution pots.
Try this example in the planner
Morgan's example opens with tax-free cash taken in one go, next to a scenario that takes it as money is needed. The Tax view shows the allowance left in each year. Changing any figure shows how the result moves.
The example is invented. It opens as a scenario of its own that you can change, and anything of yours that is open stays as it is.
Download Morgan's example plan as a JSON file, and open it in the planner with File, then Open a saved file.
Sources
Checked against these sources on , for the 2026/27 tax year.
- Lump Sum Allowance (GOV.UK) (opens in a new tab) (gov.uk)
- Tax on your private pension (GOV.UK) (opens in a new tab) (gov.uk)
- Rates and allowances for pension schemes (HMRC, GOV.UK) (opens in a new tab) (gov.uk)
- Tax when you get a pension: what's tax-free (GOV.UK) (opens in a new tab) (gov.uk)
- Abolition of the Lifetime Allowance from 6 April 2024 (HMRC, GOV.UK) (opens in a new tab) (gov.uk)
- Flexi-access pension drawdown explained (MoneyHelper) (opens in a new tab) (moneyhelper.org.uk)