The tax-free cash you can take from a UK pension changed fundamentally in April 2024, and if you live abroad there is a second question that matters just as much: tax-free in the UK does not always mean tax-free where you live. The old Lifetime Allowance is gone, replaced by a Lump Sum Allowance that caps your tax-free cash across all your pensions, and your tax residence when the lump sum arises, the type of pension payment and the relevant treaty can decide whether it stays tax-free or is taxed by the country you have moved to. This guide explains how the tax-free lump sum works in 2026, how the new allowance affects you, and the residence and timing traps that catch expats out, including one that can pull a lump sum back into UK tax entirely. If you want a clear view of your own position, our free review can help.
The Lifetime Allowance charge was abolished and the Lifetime Allowance framework was replaced from 6 April 2024 by new lump-sum allowances. The Lifetime Allowance used to cap the total value of pension benefits you could build up before extra tax applied. Note that the various forms of Lifetime Allowance protection can still matter. In its place, two new allowances were introduced. The Lump Sum Allowance (LSA) is 268,275 pounds and caps the total tax-free cash you can take from all your pensions across your lifetime. The Lump Sum and Death Benefit Allowance is normally 1,073,100 pounds and applies to specified lump sums and death benefits, including certain benefits paid on death before age 75; the tax treatment depends on the type of benefit, the member’s age at death, the available allowance and the beneficiary’s circumstances. Both standard figures were confirmed for 2026 to 2027 at the Autumn Budget 2025, and because they are not automatically uprated they may effectively erode in real terms over time; the current figures and rules should be checked again before acting, as legislation can change. If you hold a valid Lifetime Allowance protection your allowances may be higher, which is one of several reasons to check your specific position rather than assume the standard figures.
The familiar rule of taking up to 25% of a pension as tax-free cash still applies at the level of each pension, but the total tax-free cash you can take across all your pensions in your lifetime is now capped by the Lump Sum Allowance of 268,275 pounds. For a person with no previous relevant pension benefits and no special protection, 25% of pension benefits valued at approximately 1,073,100 pounds would correspond to the standard 268,275 pound Lump Sum Allowance; previous benefits, pension type, protections and transitional rules can produce a different result, so someone with benefits valued below that figure could still have less allowance available. Only lump sums are tested against the allowance, not regular pension income drawn as an ongoing income. Certain tax-free lump sums taken during your lifetime can also use part of your Lump Sum and Death Benefit Allowance, though the effect depends on the type of lump sum, your previous benefits and any transitional certificate, so the remaining allowance should be confirmed with your provider or adviser. You can normally access a private pension from the normal minimum pension age, currently 55 and generally rising to 57 from 6 April 2028; earlier access may be possible in cases such as ill-health or where a protected pension age applies, and the scheme rules also matter.
This is the point that catches expats out, and it is the heart of this guide. Up to 25% of your pension can be paid tax-free under UK rules whatever your residence status, subject to your available allowance. But that is only the UK side. Many countries tax a foreign pension lump sum as ordinary income under their own law, and whether the UK lump sum keeps its tax-free character depends on where you are tax resident when you receive it and on the double taxation treaty between the UK and that country. A payment the UK treats as entirely tax-free can be fully taxable where you live. So the question is not only how much you can take, but where and when you take it.
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The answer genuinely depends on the country. For an individual who is genuinely resident in the UAE and receives a pension lump sum in a personal capacity, the UAE generally does not impose personal income tax on that receipt. The position should nevertheless be checked where the pension is connected with a business, the recipient operates through an entity, or UAE corporate-tax rules may be relevant, and UK tax-free treatment does not by itself determine the UAE treatment. At the other extreme, US citizens and other US taxpayers should not assume that a UK tax-free pension lump sum will be tax-free in the United States: it may be taxable under US rules, the UK to US treaty contains special provisions, and specialist US advice should be obtained before drawing the lump sum. And a point that catches many European movers in particular: some European countries may tax a UK pension lump sum under their domestic rules even where the payment is tax-free in the UK, with the result depending on the country, the treaty, the type of pension payment and how the receipt is classified locally. More generally, other countries may tax a foreign pension lump sum under their own domestic law, with the result depending on local rules, the relevant treaty, the type of pension and how the payment is characterised. The only safe approach is to check the specific country and treaty before you take anything.
One tempting idea is to move abroad briefly, take the tax-free cash while non-resident, and then return to the UK. This does not work as people hope. The UK’s temporary non-residence rules can bring certain pension payments received while abroad into UK tax when you return, where the statutory conditions are met. The rules do not apply identically to every type of pension payment: a pension commencement lump sum, the tax-free cash this guide is mainly about, may be treated differently from other lump sums or flexible pension withdrawals. Some specific pension withdrawals may be subject to additional thresholds, but that does not apply automatically to every tax-free lump sum, and the detailed conditions depend on the type of payment, your previous UK residence and the length of your absence. So if you leave the UK for a relatively short period and may return, any substantial pension withdrawal, and the timing of it, needs specialist advice before you act, rather than being treated as a way to take cash tax-free.
Even where a lump sum should be tax-free or taxable only abroad, the mechanics can go wrong. UK pension providers may apply PAYE, including an emergency tax code in some first-payment situations, so tax can be deducted that then has to be corrected or reclaimed. Where the relevant treaty allocates taxing rights to your country of residence, treaty relief from UK PAYE may be available. HMRC’s DT-Individual process can be relevant in some cases, but it does not determine the overseas tax treatment and does not guarantee that a provider will make the payment without deduction. Relief should be arranged before payment where possible, and it is not automatic. Separately, if you took benefits before 6 April 2024 and took less than 25% as tax-free cash, a transitional tax-free amount certificate can matter, and any Lifetime Allowance protection needs to be factored in. These are specialist points worth getting right before you draw anything.
Some lifetime lump sums can also count against the Lump Sum and Death Benefit Allowance, though the effect depends on the type of benefit, the amount tested, previous benefits and any transitional rules, so the remaining allowance should be confirmed with your provider or adviser, and it can leave less that can be paid tax-free to beneficiaries as a lump sum. For income-tax purposes, lump-sum death benefits above the available allowance may be taxable, and benefits paid following death at or after age 75 are generally subject to the beneficiary’s marginal rate, subject to the detailed rules. Separately, for deaths on or after 6 April 2027, most unused pension funds and pension death benefits are due to be included in the estate for UK Inheritance Tax purposes; important exclusions apply, including for death-in-service benefits from registered pension schemes, and personal representatives will generally have responsibility for reporting and paying any Inheritance Tax attributable to the pension benefits. This Inheritance Tax change is separate from the income-tax treatment of death benefits, and the detailed implementation rules should be checked before relying on the position. That separation is a strong reason to look at lifetime lump sums and death benefits together rather than in isolation.
The change most people have not caught up with is that the Lifetime Allowance is gone and the tax-free cash is now capped by the Lump Sum Allowance instead. But for expats the bigger issue is that tax-free in the UK is not the end of the story: I have seen people about to take a large lump sum in a year when it would have been taxed heavily where they live, or planning a quick trip abroad that the temporary non-residence rules would have unwound. Get the amount, the country and the timing looked at together before you draw anything, because once the cash is paid the planning options may narrow.
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The UK tax-free treatment is only the UK side. The country you live in may tax a foreign pension lump sum as ordinary income, so a payment that is tax-free in the UK can be fully taxable abroad. Always check the position in your country of residence before you take anything.
What matters is where you are tax resident when you receive the lump sum, and what the treaty says. Taking it before a move, after a move, or in a year when your residence is unclear can produce very different outcomes. The timing and sequencing deserve as much thought as the amount.
The temporary non-residence rules can affect certain pension payments taken while abroad and may bring them into UK tax when you return, though the result depends on the type of payment and the statutory conditions. If your move is not clearly permanent, any substantial withdrawal needs specialist advice rather than being treated as a plan.
US citizens and other US taxpayers should not assume a UK tax-free pension lump sum will be tax-free in the United States: it may be taxable under US rules and the UK to US treaty contains special provisions. Taking it without planning for a possible US charge can turn an apparently tax-free payment into a significant liability, so US-connected individuals should take specialist advice before drawing it.
UK providers often apply PAYE or emergency tax by default, and treaty relief through the no-tax coding process is not automatic and takes time. Assuming the money will simply arrive with the right tax treatment is how people end up overpaying and reclaiming.
Illustrative example only, not a real client and not a guarantee of any outcome. This illustration is simplified and omits facts that could materially change the outcome. David, in his late fifties, had moved from the UK to Dubai and was thinking about taking the 25% tax-free cash from his UK pension to help buy a property. He assumed that because the lump sum is tax-free in the UK, it would simply arrive tax-free, and he had not thought about how his move, or a possible return to the UK in a few years, might affect that.
A review set out how the Lump Sum Allowance applied to David’s pensions. It reviewed whether he could take up to 25% within his available Lump Sum Allowance, subject to his previous benefits, protections and the scheme’s rules. It then looked at the part he had not considered: that as an individual who appeared to be UAE resident the receipt would generally not be subject to UAE personal income tax, subject to confirmation of his status and circumstances, but that if he took it while only briefly non-resident and then returned to the UK, the temporary non-residence rules could affect the UK tax treatment if the statutory conditions applied to that type of payment. It also flagged the practical steps to avoid PAYE or emergency tax being deducted in error, and how certain lifetime pension lump sums can affect the allowance available for death benefits later, depending on the type of payment and his previous benefits. Because the detail spanned pensions and cross-border tax, it was referred on to qualified specialists.
Rather than draw the cash on the assumption it was automatically tax-free, David used the review to see how his residence, his timing and a possible return to the UK all bore on the outcome, and to line up the right specialists before acting. A review of this kind does not give the pension or tax advice itself or guarantee a particular tax result; it establishes the position so the right people can act on it.
Illustrative example, not a real client.
Clarity Global Wealth helps expats understand their UK pension tax-free cash in the round, not just how much they can take, but where and when to take it, so you can understand how your residence and timing may affect its tax treatment. We help you see how the new Lump Sum Allowance affects you, whether any protection applies, how the country you live in and its treaty with the UK would treat the lump sum, and how the timing interacts with any plans to move or return to the UK. Because taking benefits from a pension and reporting the tax are specialist areas, we coordinate with qualified pension specialists and tax advisers in the relevant countries rather than giving that advice or completing returns ourselves. Our role is to give you a clear, honest view of your position and the options, so decisions are made before the cash is drawn rather than after.
Related guides and tools: UK Pension Options for British Expats, Drawing Your UK Pension Abroad and the NT Code, Transferring a UK Pension to Australia, and our pension drawdown calculator to see how long a pot could last.
This guide is provided for general information only and reflects our understanding of the rules as at the date of publication. It is not personal financial, investment, pension or tax advice, and should not be relied upon as such. Rules and tax treatment can change and depend on your individual circumstances and country of residence. You should always seek regulated advice specific to your situation before taking action.
You can normally take up to 25% of a pension as tax-free cash, subject to your available Lump Sum Allowance, currently 268,275 pounds for 2026 to 2027, and any relevant protections, previous benefits and transitional rules. The old Lifetime Allowance was replaced from 6 April 2024 by this Lump Sum Allowance and the Lump Sum and Death Benefit Allowance of 1,073,100 pounds. The figures should be checked again before acting, as legislation can change.
Up to 25% can be paid tax-free under UK rules whatever your residence status, but that is only the UK side. Whether it stays tax-free depends on where you are tax resident when you receive it and the treaty between the UK and that country. In a straightforward personal case the UAE generally does not tax it, but some European countries may tax it as income under their own rules, and US taxpayers should not assume it will be tax-free in the US. Check the specific country before you take anything.
This is risky. The UK temporary non-residence rules can affect certain pension payments received while abroad and may bring them into UK tax when you return, depending on the type of payment and the statutory conditions. If your move is not clearly permanent, any substantial withdrawal needs specialist advice rather than being treated as a plan.
You should not assume it will be tax-free in the US. It may be taxable under US rules, and the UK to US treaty contains special provisions that do not necessarily preserve the UK tax-free treatment. Specialist US advice should be obtained before drawing the lump sum.
Yes. For deaths on or after 6 April 2027, most unused pension funds and pension death benefits are due to be included in the estate for UK Inheritance Tax, with important exclusions including death-in-service benefits from registered pension schemes. This is separate from the income-tax treatment of death benefits, and the detailed rules should be checked before relying on the position.
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