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Tax

You pay income tax on your pension, in the same way as you pay income tax on your earnings when you’re working. The Scheme administrator deducts tax before your pension is paid, but it is your responsibility to complete a tax return if you have complex financial circumstances.

Pension lump sums are restricted by the following allowances. These cover your total pension savings, they are not per scheme allowances. If you take a lump sum that goes above your allowances, you’ll need to pay Income Tax on the extra amount.

If you hold a protected allowance, this may increase the amount of tax-free lump sums you can take from your pensions.

Lump sum allowance

You can usually take up to 25% of the amount built up in any pension as a tax-free lump sum, up to £268,275 (subject to changes in legislation). This is known as the lump sum allowance.

The following payments count towards your lump sum allowance:

  • A pension commencement lump sum (or tax-free cash lump sum)
  • An uncrystallised funds pension lump sum (from a Defined Contribution pension)

Lump sum and death benefit allowance

In certain circumstances, you or your beneficiaries may be able to take a tax-free lump sum of up to £1,073,100 (subject to changes in legislation). This is known as the lump sum and death benefit allowance.

The following payments count towards your lump sum and death benefit allowance:

  • A serious ill-health lump sum
  • Certain lump sum death benefits paid to your beneficiaries

Any lump sum that counts towards your lump sum allowance will also count towards your lump sum and death benefit allowance.

Tax code queries

We cannot answer questions about your tax code. If you think you are paying the wrong amount of tax, or if you think your tax code is wrong, you must contact HM Revenue & Customs (HMRC) direct, quoting your National Insurance number (if you have one).

Phone: 0300 200 3300

Textphone: 0300 200 3319

Outside UK: +44 135 535 9022

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Closed Sundays and bank holidays

Best time to call: Phone lines are less busy before 10am, Monday to Friday

Post: Pay As You Earn and Self Assessment HM Revenue & Customs, BX9 1AS, United Kingdom