How is pension drawdown income taxed in 2026/27?

Full answer

Money taken from flexi-access drawdown (above any 25% tax-free element) is treated as taxable income and added to everything else you receive in the year, such as the State Pension, other pensions, employment or rental income. It is taxed at the normal rates for 2026/27: nothing on income within the GBP 12,570 Personal Allowance, 20% up to GBP 50,270, 40% up to GBP 125,140 and 45% above, with the allowance tapering away between GBP 100,000 and GBP 125,140. Scottish taxpayers use the Scottish income tax bands. Worked example: you receive the full new State Pension of GBP 12,548 and draw GBP 20,000 from your pension. Total income is GBP 32,548. The Personal Allowance covers GBP 12,570, leaving GBP 19,978 taxable at 20%, an income tax bill of about GBP 3,996. Pension income is not subject to National Insurance, so there is no NI to pay. A common surprise is emergency tax on your first withdrawal. Providers often apply a temporary emergency tax code to one-off payments, which can deduct far too much. You can reclaim the overpayment from HMRC during the year using the relevant form, or it is corrected automatically after year end. Large one-off withdrawals can also push you into the 40% band, so spreading income across tax years can reduce the total tax. Watch the interaction with the Personal Allowance taper and, if you are still contributing, the Money Purchase Annual Allowance that taxable drawdown can trigger. Use the pension calculator to plan withdrawals and the income-tax calculator to estimate the tax on a given level of drawdown. For emergency tax refunds and current bands, see gov.uk.

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