You can take 25% of your pension pot as a tax-free lump sum.
You can choose to take a tax-free amount of 25% as one lump sum or as part of a series of lump sums. The remaining money in your pension pot will be taxed as income.
So, you’ll be taxed on your pension if all your income adds up to more than your personal allowance. Your personal allowance is the amount of income you can receive each tax year before you start paying income tax.
For the current tax year, the standard personal allowance is currently £12,570.
Here’s how it works
If you are a basic rate tax payer and receive a cash sum of £30,000:
- You get £7,500 tax-free
- £22,500 will be taxed at 20%
- You pay tax of £4,500
Total cash sum you receive after tax £25,500.
How your pension is taxed if you die
If you die before you reach 75 and some or all of your pension remains invested, your beneficiaries can receive this money tax-free.
If you die after you reach 75, the money your beneficiaries take will be taxed at their income tax rate.
Next: What’s best for you?