Answers · UK 2025/26

How is a £350,000 pension pot taxed if I take income drawdown?

From a £350,000 pension pot, you can normally take £87,500 (25%) as a tax-free lump sum, leaving £262,500 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.

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Full answer

A £350,000 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 -- £87,500 -- leaving £262,500 in the taxable portion. Every withdrawal from that £262,500 is added to any other income you have in the tax year it is taken and taxed at your marginal Income Tax rate. Because the taxable portion is substantial, how quickly you draw it makes a significant difference to total tax paid: spreading withdrawals across twenty or more years of retirement, taking amounts that fit within the Personal Allowance and basic-rate band alongside the State Pension, can keep much of it taxed at 0% to 20%, whereas withdrawing large chunks in a handful of tax years would push much of it into the 40% higher-rate band, and could even 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.