Answers · UK 2025/26

How is a £200,000 pension pot taxed if I take income drawdown?

From a £200,000 pension pot, you can normally take £50,000 (25%) as a tax-free lump sum, leaving £150,000 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.

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Full answer

A £200,000 defined contribution pension pot accessed through flexi-access drawdown from normal minimum pension age (currently 55, rising to 57 from April 2028) allows a Pension Commencement Lump Sum of up to 25% tax-free -- £50,000 -- leaving £150,000 in the taxable portion. Every withdrawal from that £150,000 is added to any other income you have in the tax year it is taken and taxed at your marginal Income Tax rate. Because £150,000 is substantial, how quickly you draw it makes a significant difference to total tax paid: spreading withdrawals across fifteen to twenty years of retirement, taking amounts that fit within the Personal Allowance and basic-rate band alongside the State Pension, can keep the effective tax rate close to 0% to 20% overall, whereas withdrawing large chunks in a handful of tax years would push much of it into the 40% higher-rate band, and potentially trigger the £100,000 Personal Allowance taper if combined with other income in a single tax year. Pension providers usually apply an emergency tax code to the first withdrawal in a tax year, correctable by contacting HMRC or through automatic year-end reconciliation. Accessing the taxable portion also triggers the £10,000 Money Purchase Annual Allowance if you plan to keep contributing to a pension while working.