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    Pensions & Retirement Tax Guide 2026/27 | UK Tax Hero
    Personal Tax · 2026/27

    Pensions & Retirement
    tax explained.

    Pension contributions get tax relief at your highest rate. The £60,000 annual allowance, MPAA, tapered allowance, 25% tax-free cash, drawdown tax and the April 2027 change bringing pensions into IHT — with worked examples.

    Read the guide → Find an expert
    ✓ Verified 2026/27✓ HMRC sources✓ Free calculators

    Pensions & Retirement

    🛡️ 2026/27
    Annual allowance£60,000
    MPAA£10,000
    Tax-free cash25%
    Max tax-free cash£268,275
    Verified figuresUpdated May 2026
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    Relief & allowances
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    Key 2026/27 figures

    The numbers that matter.

    £60,000
    Annual allowance (or 100% of earnings)
    £10,000
    Money Purchase Annual Allowance
    25%
    Tax-free lump sum (cap £268,275)
    Apr 2027
    Pensions enter estates for IHT
    Complete guide

    Pensions & Retirement Tax for 2026/27

    Pension tax relief, the £60,000 annual allowance, the MPAA and tapered allowance, tax-free cash, how drawdown is taxed, and the April 2027 IHT change — with worked examples and HMRC links.

    Pension tax relief

    Contributions get relief at your highest marginal rate, making pensions one of the most efficient ways to save. The annual allowance is £60,000 for 2026/27 (or 100% of your UK earnings, if lower), covering your contributions, your employer’s and any third party’s. Basic-rate relief (20%) is added automatically; higher- and additional-rate taxpayers claim the extra through Self Assessment.

    Worked example

    Higher-rate taxpayer pays £8,000 net into a personal pension

    Net contribution£8,000
    Basic-rate relief added to pension£2,000
    Gross contribution in pension£10,000
    Extra 20% claimed via Self Assessment£2,000
    Effective net cost£6,000

    MPAA and the tapered allowance

    • MPAA — once you flexibly access a defined contribution pension, your future DC contribution limit drops to £10,000 a year. Taking only the 25% tax-free cash doesn’t trigger it.
    • Tapered allowance — if your adjusted income exceeds £260,000, the £60,000 allowance reduces by £1 for every £2 above, down to a £10,000 minimum (the taper only bites if threshold income also exceeds £200,000).
    • Carry forward — unused allowance from the previous three years can be used if you were a scheme member, after using the current year first.

    Taking your pension

    You can normally access a private pension from age 55 (rising to 57 from April 2028). You can take 25% tax-free (the pension commencement lump sum), capped at £268,275. The rest is taxed as income at your marginal rate, whether via drawdown or an annuity. The lifetime allowance was abolished in April 2024.

    ⚠️ Watch emergency tax on first withdrawals

    Your provider often applies an emergency code to your first flexible withdrawal, over-taxing it. HMRC reconciles this automatically, or you can reclaim sooner using forms P55, P53Z or P50Z depending on your situation. See gov.uk/claim-tax-refund.

    The State Pension

    The full new State Pension is £241.30 a week in 2026/27, needing 35 qualifying years (10 for any pension). It’s taxable but paid without tax deducted, so tax on it is collected through your other income or Self Assessment. Check your forecast at gov.uk/check-state-pension.

    The April 2027 pension-IHT change

    📌 Pensions enter your estate from April 2027

    From 6 April 2027, most unused defined contribution pension pots become part of your estate for Inheritance Tax. With 40% IHT possible on the pot — and Income Tax for beneficiaries if you die after 75 — this can mean double taxation. It reshapes withdrawal order and beneficiary planning. See our dedicated Pension & IHT death tax guide.

    🔗 Official sources

    Pension tax: gov.uk/tax-on-your-private-pension. Annual allowance: gov.uk/tax-on-your-private-pension/annual-allowance.

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    Common questions

    Pensions & Retirement FAQs

    Relief, allowances, tax-free cash, drawdown and the 2027 IHT change — answered.

    What is the pension annual allowance for 2026/27?
    £60,000, or 100% of your UK earnings if lower. It covers your, your employer’s and any third-party contributions.
    How does pension tax relief work?
    You get relief at your highest rate. Basic-rate (20%) is automatic; higher and additional-rate taxpayers claim the extra 20% or 25% through Self Assessment.
    What is the Money Purchase Annual Allowance?
    £10,000. It limits future DC pension contributions once you’ve flexibly accessed a pension. Taking only tax-free cash doesn’t trigger it.
    When can I access my pension?
    From age 55, rising to 57 from April 2028 for most private pensions.
    How much can I take tax-free?
    Usually 25% of the pot as a tax-free lump sum, capped at £268,275.
    How is the rest of my pension taxed?
    Income above the 25% tax-free cash is taxed at your marginal rate (20%, 40% or 45%) whether taken via drawdown or annuity.
    What is the tapered annual allowance?
    For those with adjusted income over £260,000, the £60,000 allowance tapers by £1 per £2 down to a £10,000 minimum, if threshold income also exceeds £200,000.
    Can I carry forward unused allowance?
    Yes, from the previous three tax years if you were a pension scheme member, after using the current year’s allowance first.
    Do I pay National Insurance on pension income?
    No. Neither private pension income nor the State Pension attracts National Insurance.
    Is the State Pension taxable?
    Yes, but it’s paid gross. Tax is collected through your code on other income or via Self Assessment if your total exceeds the Personal Allowance.
    How much is the full State Pension?
    £241.30 a week for 2026/27 under the new State Pension, after a 4.8% triple-lock rise.
    What is pension drawdown?
    Flexible income taken from your pot while the rest stays invested, taxed at your marginal rate as you withdraw.
    What is an annuity?
    A product converting your pot into a guaranteed income for life, with income taxed at your marginal rate.
    What happens if I exceed the annual allowance?
    The excess faces an annual allowance charge at your marginal rate. Carry forward may avoid this; otherwise you can sometimes pay via "scheme pays".
    Is there still a lifetime allowance?
    No. The lifetime allowance was abolished in April 2024, but lump-sum allowances now cap tax-free cash.
    Can I contribute if I’m not working?
    Yes — up to £3,600 gross a year (£2,880 net) even with no earnings, with basic-rate relief added.
    What is salary sacrifice?
    Your employer reduces your salary and pays the difference into your pension, saving both Income Tax and National Insurance.
    Why might my first withdrawal be over-taxed?
    Providers often apply an emergency code to first flexible withdrawals. HMRC reconciles it, or you can reclaim with forms P55, P53Z or P50Z.
    How do higher-rate taxpayers claim extra relief?
    Through Self Assessment (the tax reliefs section) or by contacting HMRC to adjust the tax code. Over £1bn of higher-rate relief goes unclaimed each year.
    What happens to my pension when I die?
    Currently pensions usually pass outside your estate. From April 2027, most unused DC pots will be included in your estate for Inheritance Tax.
    Can I take my whole pension as cash?
    Yes — 25% tax-free, the rest taxable. But this can create a large Income Tax bill and triggers the MPAA.
    What is the minimum pension age change in 2028?
    The normal minimum pension age rises from 55 to 57 on 6 April 2028 for most schemes.
    How do I claim a pension tax refund?
    Use form P55 (if you’ve taken part of your pot), P53Z (taken it all, still working) or P50Z (taken it all, stopped working). HMRC also reconciles automatically after year-end.
    What is "scheme pays"?
    An option allowing your pension scheme to pay an annual allowance charge from your pension in certain circumstances, rather than you paying directly.
    Should I draw my pension or ISA first?
    Historically ISAs were drawn first to preserve a pension’s IHT exemption. The April 2027 change weakens that logic — consider personalised advice.
    Where can I find official pension tax guidance?
    See gov.uk/tax-on-your-private-pension and the annual allowance pages on GOV.UK.
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    UK Tax Hero provides general tax guidance and a free expert-matching service for the 2026/27 tax year. It is not personal tax, legal or financial advice. Figures are based on published HMRC rates and may change. Always confirm details on GOV.UK or with a qualified professional before acting.