Yes, usually: a pension you receive through a pension sharing order can pay tax-free cash, unless it was split from a pension already being paid.

A pension sharing order gives the ex-spouse a pension credit and reduces the other person's pension by a pension debit. Whether the credit carries tax-free cash depends mostly on one thing: whether the pension that was shared had already started to pay out. If your pension is a defined contribution pot, Pension Wise offers free, impartial, government-backed guidance on taking it. Your own credit or debit may look different once an FCA-authorised adviser has gone through your whole picture, and the call-back form below lets you ask for one at no cost.

Can you take tax-free cash from a pension sharing order?

Usually yes. HMRC's Pensions Tax Manual says a person whose benefit rights come from a pension credit "can, in general, have the same benefits, in terms of the type of benefits as any other member of the scheme." So the ordinary tax-free lump sum rules apply to the credit, with one exception covered below.

Those ordinary rules, in GOV.UK's words: "You can usually take up to 25% of the amount built up in any pension as a tax-free lump sum. The most you can take is £268,275." What you draw beyond the tax-free part is taxed as pension income, and a protected allowance can lift the cap for the few who hold one.

The credit itself is created when the scheme values the member's rights and cuts them by the amount the order states (the pension debit); that amount becomes new rights in the ex-spouse's own name (the pension credit). Depending on the scheme, the credit can stay where it is or be moved to another scheme, such as a personal pension.

When you can start drawing it is a separate point. GOV.UK says it depends on the scheme's rules and is usually 55 at the earliest; HMRC confirms the normal minimum pension age becomes 57 from 6 April 2028. Exceptions such as protected pension ages and ill-health retirement have their own pages.

When a pension credit has no tax-free cash

The exception is a credit carved out of a pension that was already being paid. HMRC says: "Where this happens the recipient of the pension credit cannot receive a lump sum as part of the benefits that are eventually paid in respect of the pension credit." Its term for such a credit is a disqualifying pension credit.

The test has two limbs. A pension credit is disqualifying "if at the time the pension credit was created" the ex-spouse's "pension that was being shared with the member was actually in payment." If the shared pension had not come into payment then, it is not disqualifying, and it stays that way even if those benefits start paying later. The rule bites "regardless of whether a lump sum was actually taken" by the person whose pension was shared.

The effect runs through the lump sum calculations. Disqualifying credit rights are left out of the maximum, so where all the rights relate to such a credit the permitted maximum is nil, and where only part do, the amount is discounted proportionately. A credit of that kind also cannot be paid as an uncrystallised funds pension lump sum. For a defined contribution pot, HMRC's simplest method is to take 25% of the uncrystallised funds that are not a disqualifying credit.

What counts as "in payment" for a drawdown pot, where funds may be designated but not drawn, is a detail the adviser firm behind the enquiry form can explain without charge.

Pension credits from final salary and other defined benefit schemes

In a defined benefit scheme the tax-free cash is worked out from the pension rather than from a pot. HMRC's formula for the maximum starts from the lump sum and the pension, and includes a deduction, D, applied only where either of them represents rights from a disqualifying credit. Where the lump sum comes from giving up pension, the manual says: "Where the applicable amount needs to be reduced due to a disqualifying pension credit a deduction needs to be made using 'D' in the formula." The part of the pension that relates to the credit then cannot be exchanged for cash. In its worked example a third of a member's pension comes from a disqualifying credit, and that third is left out of the calculation.

The deduction lowers the maximum. How a given scheme words its options, and how it applies the formula to a credit, is for the scheme to explain. Our guides to final salary lump sums and the defined benefit lump sum allowance cover the general position, and the NHS and armed forces pension pages cover those schemes.

How the lump sum allowance works for each person

Each person has their own lump sum allowance. HMRC's manual says: "Individuals are entitled to a lump sum allowance of £268,275 unless they have a protected right to a higher lump sum allowance." A lump sum above it is taxed as income at the person's marginal rate, and a pension commencement lump sum can only be paid while some of both this allowance and the lump sum and death benefit allowance remains.

The person with the credit. The credit becomes pension rights in their own name, so tax-free cash from it is tested against their own allowance, the same single allowance that covers their other pensions. Receiving the credit does not count towards their annual allowance either.

The person whose pension was shared. Their rights are cut by the debit, and a pension already being paid is reduced from then on. For people holding certain protections the debit matters more. Primary protection "can be reduced or lost entirely as a result of a pension sharing order", and a person with individual protection 2014 or 2016 "may have their level of protection reduced or lose protection altogether." Holders of these protections have to tell HMRC about the debit; for individual protection the manual sets a 60-day deadline.

For someone with no protection, whether a debit changes the standard allowance they hold can be explained by an adviser at no cost once you ask for a call-back.

One allowance feature exists only for credits, and it is now closed to new claims. The "pension credit factor" can enhance the lump sum and death benefit allowance of someone whose credit meets all four of HMRC's conditions: the credit is held in a registered pension scheme and was acquired on or after 6 April 2006 but before 6 April 2024; it came from a pension already in payment to the original member at the time of the order; the original member became entitled to that pension on or after 6 April 2006 but before 6 April 2024; and a notice of intention to rely on the factor is given to HMRC. The current guidance covers applications from 6 April 2024 to 5 April 2025, and from 5 April 2025 individuals "will be unable to apply for any of the above enhancement factors." The factor raises the lump sum and death benefit allowance; it does not change the rule that a credit from a pension in payment carries no tax-free lump sum.

Is the pension sharing order itself taxed?

Not as a withdrawal. HMRC's manual says payments related to a pension sharing order are "not payments of benefits" but are authorised member payments, the same category as recognised transfers. That matters because a payment from a registered scheme outside the authorised categories is by default an unauthorised payment, and those attract the unauthorised payments tax charges. Nor is a credit received from another registered pension scheme treated as a contribution: the manual's reason is that it has already had tax relief in the scheme it came from.

Moving the credit to another scheme later is covered by the transfer rules: HMRC names an ex-spouse with a pension credit who wants to move it as one of its examples, and a recognised transfer carries no unauthorised payments tax charge. Tax arrives when money is drawn: anything above the tax-free part is taxed as pension income, and with an uncrystallised funds pension lump sum the 75% that is not tax-free is taxed that way.

Scotland

HMRC says "In Scotland the process is essentially the same, although the pension sharing order might be achieved by a legally binding agreement rather than by a court order." The tax-free cash rules above come from HMRC's manual, but the divorce route differs; see pensions on divorce in Scotland.

Frequently asked questions

Do you pay tax on a pension sharing order?

The split is not a payment of benefits: HMRC classes it as an authorised member payment. Tax comes later, when the credit is drawn, on anything above the tax-free part.

Can I take a lump sum from a pension I received through a pension sharing order?

Usually, up to 25% and within your lump sum allowance. The exception is a credit created from a pension that was already being paid, which carries no tax-free lump sum at all.

What is a disqualifying pension credit?

It is a credit made when the pension being shared was already in payment. Its rights are left out when the maximum tax-free lump sum is calculated.

Does the lump sum allowance reduce for the person whose pension is shared?

For holders of primary or individual protection, yes: a debit can shrink the protection or end it. For someone without protection, the scheme or an adviser can say how a debit affects them.

How much does a pension sharing order cost, and how long does it take?

Those are separate questions: see what a pension sharing order costs and the pension sharing order timeline. For the wider picture, start with pensions on divorce.

Holding a credit or a debit, and unsure how the tax-free cash rules fit your position? Request a call-back by leaving your number below; an FCA-authorised adviser rings you at no charge. For the general rules on tax-free cash, see the pension tax-free lump sum guide.

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