Answers · UK 2025/26

How is a £400,000 pension pot taxed if I take income drawdown?

From a £400,000 pension pot, you can normally take £100,000 (25%) as a tax-free lump sum, leaving £300,000 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 £400,000 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 -- £100,000 -- leaving £300,000 in the taxable portion. Every withdrawal from that £300,000 is added to any other income you have in the tax year it is taken and taxed at your marginal Income Tax rate. Spreading withdrawals across twenty years or more of retirement, using amounts that fit within the Personal Allowance and basic-rate band alongside the State Pension, can keep much of the £300,000 taxed at 0% to 20% overall, while drawing large amounts in a small number of tax years would push a significant share into the 40% higher-rate band, and combined income above £100,000 in any given year would also taper the Personal Allowance. 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 beyond the lump sum also triggers the £10,000 Money Purchase Annual Allowance if you plan to keep contributing to a pension while working.