Why rushing for your tax-free cash before the Budget is usually a mistake
23rd October 2026
There is talk again that next Wednesday’s UK Budget, on 28 October 2026, will cut the 25% tax-free lump sum that people can take from their pensions. For most people, taking that cash early because of the talk is a mistake. The same speculation went round before the 2024 and 2025 Budgets, and both times the lump sum was left unchanged. HMRC has also confirmed that once a lump sum is paid, the payment cannot be reversed for tax purposes. For expats, the tax-free label can also mislead, because the country they live in can tax a lump sum that is tax-free in the UK.
Three years of the same speculation
This is the third year running that the weeks before the Budget have brought reports of a cut to tax-free cash. This year there is a new Chancellor, and the margin he has against the government’s own borrowing rules has fallen from nearly £24bn in March to about £15bn as borrowing costs have climbed. City AM estimates that cutting or scrapping the lump sum could raise up to £2bn a year, so it keeps appearing on lists of options.
The amounts taken out of pensions have risen sharply. FCA figures show the amount of tax-free cash taken rose by 63% between 2023-24 and 2024-25, the year of the first round of reports. HMRC figures for taxable withdrawals, which exclude tax-free cash, rose from £15.3bn in 2023-24 to £22.4bn in 2025-26. Research by Rathbones in 2025 found that taking a pension lump sum was the joint most regretted decision from the run-up to the 2024 Budget, alongside selling investments to avoid higher capital gains tax.
The Chancellor has refused to comment on tax before the speech, so everything reported so far is speculation.
This is the third year running that the weeks before the Budget have brought reports of a cut to tax-free cash. This year there is a new Chancellor, and the margin he has against the government’s own borrowing rules has fallen from nearly £24bn in March to about £15bn as borrowing costs have climbed. City AM estimates that cutting or scrapping the lump sum could raise up to £2bn a year, so it keeps appearing on lists of options.
The amounts taken out of pensions have risen sharply. FCA figures show the amount of tax-free cash taken rose by 63% between 2023-24 and 2024-25, the year of the first round of reports. HMRC figures for taxable withdrawals, which exclude tax-free cash, rose from £15.3bn in 2023-24 to £22.4bn in 2025-26. Research by Rathbones in 2025 found that taking a pension lump sum was the joint most regretted decision from the run-up to the 2024 Budget, alongside selling investments to avoid higher capital gains tax.
The Chancellor has refused to comment on tax before the speech, so everything reported so far is speculation.
The people who tried to put it back
After the 2024 Budget left tax-free cash alone, some of the people who had taken it tried to pay it back. A few pension providers had let customers cancel a withdrawal within 30 days, and some savers had counted on that.
HMRC has since ruled this out. Its September 2025 pension schemes newsletter says cancellation rights do not apply to these lump sums, and that the tax consequences of a payment stand even if the money is returned. Paying a large lump sum back into a pension can also break HMRC’s recycling rules, which treat it as an unauthorised payment with tax charges of 55% and in some cases 70%.
How the Treasury has handled cuts before
When the UK has tightened pension tax rules in the past, it has usually protected rights people had already built up.
At A-Day in April 2006, when the pension tax system was rewritten, members whose schemes promised more than 25% tax-free cash kept that higher entitlement. The lifetime allowance, the old cap on how much pension savings could build up before extra tax applied, was cut three times in the 2010s. With every cut, savers could register a form of protection to keep the old, higher limit, and people who did so still have a higher tax-free cash limit today, more than two years after the allowance was abolished.
A government short of money could break that pattern on Wednesday, but if it holds, savers who wait would be likely to keep the tax-free cash they have already built up, and their money would stay invested inside the pension in the meantime.
The frozen cap
Unless they have registered protection, the most tax-free cash anyone can take across all their pensions is £268,275. That figure is 25% of the final lifetime allowance of £1,073,100, which applied from April 2020 until the allowance was abolished in 2024, and the cap has stayed at that level since 2020.
UK prices have risen by about 33% since April 2020. In April 2020 money, the cap is now worth about £202,000, and if it had kept pace with inflation it would stand at roughly £356,000. The cap only affects pensions worth more than about £1.07m, and for those savers the tax-free cash available has shrunk in real terms every year since 2020.
After the 2024 Budget left tax-free cash alone, some of the people who had taken it tried to pay it back. A few pension providers had let customers cancel a withdrawal within 30 days, and some savers had counted on that.
HMRC has since ruled this out. Its September 2025 pension schemes newsletter says cancellation rights do not apply to these lump sums, and that the tax consequences of a payment stand even if the money is returned. Paying a large lump sum back into a pension can also break HMRC’s recycling rules, which treat it as an unauthorised payment with tax charges of 55% and in some cases 70%.
How the Treasury has handled cuts before
When the UK has tightened pension tax rules in the past, it has usually protected rights people had already built up.
At A-Day in April 2006, when the pension tax system was rewritten, members whose schemes promised more than 25% tax-free cash kept that higher entitlement. The lifetime allowance, the old cap on how much pension savings could build up before extra tax applied, was cut three times in the 2010s. With every cut, savers could register a form of protection to keep the old, higher limit, and people who did so still have a higher tax-free cash limit today, more than two years after the allowance was abolished.
A government short of money could break that pattern on Wednesday, but if it holds, savers who wait would be likely to keep the tax-free cash they have already built up, and their money would stay invested inside the pension in the meantime.
The frozen cap
Unless they have registered protection, the most tax-free cash anyone can take across all their pensions is £268,275. That figure is 25% of the final lifetime allowance of £1,073,100, which applied from April 2020 until the allowance was abolished in 2024, and the cap has stayed at that level since 2020.
UK prices have risen by about 33% since April 2020. In April 2020 money, the cap is now worth about £202,000, and if it had kept pace with inflation it would stand at roughly £356,000. The cap only affects pensions worth more than about £1.07m, and for those savers the tax-free cash available has shrunk in real terms every year since 2020.
How other countries tax the lump sum
The 25% is tax-free under UK rules. What happens next depends on where you live, and some countries tax it as ordinary income.
Under the rules in force since 1 January 2024, foreign income brought into Thailand by a Thai tax resident has been taxable in the year it arrives. Thai law has no specific exemption for a UK pension lump sum, so bringing it into the country can turn tax-free cash into taxable income at rates up to 35%. A draft rule would exempt foreign income brought in during the year it was received or the following year. It has been discussed for months and is still unpublished in the Royal Gazette, so it has no legal force yet. Under the current rules the lump sum is taxable whenever it is brought in. If the draft becomes law, the timing of a transfer could decide whether it is taxed in Thailand at all.
Here is how a UK lump sum is treated in some of the places our clients live:
The 25% is tax-free under UK rules. What happens next depends on where you live, and some countries tax it as ordinary income.
Under the rules in force since 1 January 2024, foreign income brought into Thailand by a Thai tax resident has been taxable in the year it arrives. Thai law has no specific exemption for a UK pension lump sum, so bringing it into the country can turn tax-free cash into taxable income at rates up to 35%. A draft rule would exempt foreign income brought in during the year it was received or the following year. It has been discussed for months and is still unpublished in the Royal Gazette, so it has no legal force yet. Under the current rules the lump sum is taxable whenever it is brought in. If the draft becomes law, the timing of a transfer could decide whether it is taxed in Thailand at all.
Here is how a UK lump sum is treated in some of the places our clients live:
| Where you live | How a UK pension lump sum is treated |
|---|---|
| Thailand | Taxable as income if remitted by a Thai tax resident, at rates up to 35% |
| Malaysia | Foreign income received by residents can be exempt until the end of 2036, subject to conditions |
| Singapore | Foreign income received by resident individuals is generally exempt |
| UAE | No personal income tax |
For someone living in Bangkok or on Koh Samui, taking the lump sum without a plan for when and how it reaches Thailand can mean a Thai tax bill on money the UK treats as tax-free - ignoring it is probably not the right play!
The inheritance tax argument
From 6 April 2027, most unused pension funds will count towards the estate for UK inheritance tax. Some commentators are using this as a reason to take cash out before the Budget.
Cash in a bank account also counts towards your estate. Taking money out of a pension only reduces inheritance tax if the money is spent, given away or, for some expats, held in a way that falls outside UK inheritance tax. A UK pension left in place stays within UK inheritance tax however long you have lived abroad, because it counts as a UK asset. For expats who have lived abroad long enough to fall outside UK inheritance tax on their overseas assets, that can make a case for drawing some of it out over time.
That case depends on how long you have lived abroad, your age, where the money would be held and what you plan to do with it. The deadline for that planning is 6 April 2027, about five months away.
What we would do before the Budget
If you have a firm plan for the money in the next few months, such as clearing a mortgage or buying a property, taking it a little earlier than planned is a reasonable thing to discuss with your adviser.
If there is no firm use for the money yet, we would wait for the Budget documents. They are published on Wednesday afternoon, UK time, and will set out the detail of any change, including any protection for existing savings. Most past changes to pension tax have applied from a later date, often the start of the next tax year, though some changes take effect immediately.
Before any withdrawal, we look at where a client lives, how their country taxes the lump sum and how the pension fits with the inheritance tax rules from 2027. Brigantia provides fee-based financial advice for expats in Thailand and Southeast Asia.
You can book an initial call below.
The inheritance tax argument
From 6 April 2027, most unused pension funds will count towards the estate for UK inheritance tax. Some commentators are using this as a reason to take cash out before the Budget.
Cash in a bank account also counts towards your estate. Taking money out of a pension only reduces inheritance tax if the money is spent, given away or, for some expats, held in a way that falls outside UK inheritance tax. A UK pension left in place stays within UK inheritance tax however long you have lived abroad, because it counts as a UK asset. For expats who have lived abroad long enough to fall outside UK inheritance tax on their overseas assets, that can make a case for drawing some of it out over time.
That case depends on how long you have lived abroad, your age, where the money would be held and what you plan to do with it. The deadline for that planning is 6 April 2027, about five months away.
What we would do before the Budget
If you have a firm plan for the money in the next few months, such as clearing a mortgage or buying a property, taking it a little earlier than planned is a reasonable thing to discuss with your adviser.
If there is no firm use for the money yet, we would wait for the Budget documents. They are published on Wednesday afternoon, UK time, and will set out the detail of any change, including any protection for existing savings. Most past changes to pension tax have applied from a later date, often the start of the next tax year, though some changes take effect immediately.
Before any withdrawal, we look at where a client lives, how their country taxes the lump sum and how the pension fits with the inheritance tax rules from 2027. Brigantia provides fee-based financial advice for expats in Thailand and Southeast Asia.
You can book an initial call below.
