When you access your pension savings, you generally have two main options: taking a tax-free lump sum and then withdrawing the rest as taxable income, or taking your entire pension as taxable income. The tax-free lump sum is typically limited to 25% of your pension pot, up to a certain limit known as the 'Lifetime Allowance' (though this is being reformed). The remaining 75% of your pension pot, if withdrawn as income, is subject to your usual income tax rates.
How the Calculator Works:
Our Pension Tax Calculator simplifies this process to give you an estimate of the tax you might pay on your pension withdrawals. Here's the breakdown of the calculation:
Tax-Free Lump Sum Calculation: We first determine the maximum tax-free amount you can take. This is calculated as 25% of your Total Pension Value.
Taxable Pension Withdrawal: The remaining portion of your pension pot is considered the taxable withdrawal. This is calculated as Total Pension Value minus the Tax-Free Lump Sum.
Income Tax Calculation: The income tax payable is then applied to the Taxable Pension Withdrawal based on your selected Marginal Income Tax Rate. The formula is: Taxable Pension Withdrawal × (Marginal Income Tax Rate / 100).
Total Tax Paid: This is the amount of income tax calculated on the taxable portion.
Example:
Let's say you have a Total Pension Value of £100,000 and are entitled to the standard 25% Tax-Free Lump Sum. Your Marginal Income Tax Rate is 20% (Basic Rate).
In this scenario, you would receive £25,000 tax-free and £60,000 taxable income after tax, totalling £85,000 in your pocket from the £100,000 pension pot, with £15,000 going towards income tax.
Important Considerations:
Personal Allowances: This calculator does not account for your personal tax allowance, which could reduce the actual tax you pay.
Lifetime Allowance (LTA): While the LTA charge has been removed, the concept of benefit crystallisation events and potential limits still exist, affecting how much can be taken tax-free. This calculator assumes you are within any relevant limits for the 25% tax-free portion.
Other Income: Your overall tax position depends on all your income sources, not just your pension.
Tax Rules Change: Tax laws and allowances are subject to change. Always consult with a qualified financial advisor for personalised advice.
function calculatePensionTax() {
var pensionValueInput = document.getElementById("pensionValue");
var taxFreeLumpSumInput = document.getElementById("taxFreeLumpSum");
var incomeTaxRateInput = document.getElementById("incomeTaxRate");
var resultDiv = document.getElementById("result");
var pensionValue = parseFloat(pensionValueInput.value);
var taxFreeLumpSumPercent = parseFloat(taxFreeLumpSumInput.value);
var incomeTaxRate = parseFloat(incomeTaxRateInput.value);
if (isNaN(pensionValue) || isNaN(taxFreeLumpSumPercent) || isNaN(incomeTaxRate)) {
resultDiv.innerHTML = "Please enter valid numbers for all fields.";
resultDiv.style.backgroundColor = "#f8d7da";
resultDiv.style.color = "#721c24";
resultDiv.style.display = "block";
return;
}
// Cap tax-free lump sum percentage at 25% for calculation purposes as per general rules
// Note: Actual entitlement can be complex and dependent on specific pension scheme rules and LTA.
// This calculator simplifies based on the input provided, but a hard cap at 25% is common.
var effectiveTaxFreePercent = Math.min(taxFreeLumpSumPercent, 25);
var taxFreeLumpSum = pensionValue * (effectiveTaxFreePercent / 100);
var taxableWithdrawal = pensionValue – taxFreeLumpSum;
var incomeTaxPayable = taxableWithdrawal * (incomeTaxRate / 100);
var totalTax = incomeTaxPayable; // Assuming tax-free lump sum is the only non-taxable part considered
// Adjust for cases where tax-free lump sum is capped at 25%
var actualTaxableWithdrawal = pensionValue – (pensionValue * (effectiveTaxFreePercent / 100));
if (taxFreeLumpSumPercent 25) {
// If user enters more than 25%, we assume they mean the maximum allowed 25% tax-free portion.
// The calculation for taxFreeLumpSum used Math.min(taxFreeLumpSumPercent, 25), so it's already capped.
// The taxableWithdrawal is therefore correctly calculated.
}
var netPensionReceived = pensionValue – totalTax;
resultDiv.innerHTML =
"Estimated Tax: £" + totalTax.toFixed(2) + "" +
"Tax-Free Lump Sum: £" + taxFreeLumpSum.toFixed(2) + "" +
"Taxable Pension Amount: £" + actualTaxableWithdrawal.toFixed(2) + "" +
"Net Pension Received (after tax): £" + netPensionReceived.toFixed(2);
resultDiv.style.backgroundColor = "#d4edda";
resultDiv.style.color = "#155724";
resultDiv.style.display = "block";
}