Answers · UK 2025/26

How is a £25,000 pension pot taxed if I take income drawdown?

From a £25,000 pension pot, you can normally take £6,250 (25%) as a tax-free lump sum, leaving £18,750 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.

Last updated: 10 July 2026Last reviewed: 10 July 2026How we verify

Full answer

A £25,000 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 -- £6,250 -- leaving £18,750 in the taxable portion. Every withdrawal from that £18,750 is added to any other income you have in the tax year it is taken and taxed at your marginal Income Tax rate, exactly like salary or the State Pension. Because the pot is relatively small, many people with little other income can withdraw the entire taxable £18,750 within a single tax year and still pay no Income Tax, since it sits comfortably within the £12,570 Personal Allowance plus some basic-rate headroom -- although if you have other income such as a State Pension or part-time earnings, some or all of the withdrawal could be taxed at 20%. Small pots like this are also sometimes eligible for a 'small pot' lump sum rule, allowing the whole amount to be taken (25% tax-free, 75% taxable) without triggering the Money Purchase Annual Allowance, which is worth checking with your provider if you plan to keep contributing to another pension. Pension providers usually apply an emergency tax code to the first withdrawal, correctable by contacting HMRC or through automatic year-end reconciliation.