Answers · UK 2025/26

How is a £100,000 pension pot taxed if I take income drawdown?

From a £100,000 pension pot, you can normally take £25,000 (25%) as a tax-free lump sum, leaving £75,000 to draw down as taxable income. Withdrawals from the taxable portion are added to your other income for the tax year and taxed at your marginal rate -- withdrawing it slowly, within your Personal Allowance, avoids tax altogether in years with no other income.

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Full answer

Once you reach normal minimum pension age (currently 55, rising to 57 from April 2028), a defined contribution pension pot of £100,000 can be accessed flexibly through drawdown. The Pension Commencement Lump Sum lets you take up to 25% tax-free -- £25,000 in this case -- either all at once or in stages, leaving £75,000 in the taxable portion of the pot. Every withdrawal you then take from that £75,000 counts as taxable income for the tax year in which you take it, added to any salary, State Pension or other income you have, and taxed at your marginal Income Tax rate through PAYE (pension providers typically apply an emergency tax code on the first withdrawal, which can usually be reclaimed via HMRC form P55, P53Z or P50Z if overpaid). If you have no other income, withdrawing up to £12,570 a year from the taxable portion uses your full Personal Allowance and is tax-free, meaning the £75,000 taxable balance could theoretically be drawn over roughly six years without any Income Tax at all, though most people combine drawdown with the State Pension and other income sources. Taking large lump sums from the taxable portion in a single tax year risks pushing income into the 40% higher rate band unnecessarily. Note that taking any taxable income (not just tax-free cash) from a defined contribution pot through flexi-access drawdown triggers the Money Purchase Annual Allowance, cutting your annual pension contribution allowance to £10,000 if you are still working and paying into a pension.