Answers · UK 2025/26

How is a £250,000 pension pot taxed if I take income drawdown?

From a £250,000 pension pot, you can normally take £62,500 (25%) as a tax-free lump sum, leaving £187,500 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 -- spreading withdrawals across several tax years and staying within lower tax bands reduces the overall tax paid.

Last updated: 3 July 2026Last reviewed: 3 July 2026How we verify

Full answer

A £250,000 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 -- £62,500 -- leaving £187,500 in the taxable portion. Every withdrawal from that £187,500 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 £187,500 is a substantial sum, how quickly you draw it makes a big difference to total tax paid: withdrawing it all in one or two tax years would push large amounts into the 40% higher rate band (and potentially trigger the £100,000 Personal Allowance taper if combined with other income), whereas spreading withdrawals across a decade or more of retirement -- taking amounts that fit within the Personal Allowance and basic rate band each year -- can keep the effective tax rate much lower, often close to 0% to 20% overall depending on other income such as the State Pension. Pension providers usually apply an emergency tax code to the first withdrawal in a tax year, which can be corrected by contacting HMRC or waiting for the automatic year-end reconciliation. As with any flexible pension withdrawal beyond the tax-free lump sum, accessing the taxable portion triggers the £10,000 Money Purchase Annual Allowance if you plan to keep contributing to a pension while working.