Answers · UK 2025/26

How is a £450,000 pension pot taxed if I take income drawdown?

From a £450,000 pension pot, you can normally take £112,500 (25%) as a tax-free lump sum, leaving £337,500 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.

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

Full answer

A £450,000 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 -- £112,500 -- leaving £337,500 in the taxable portion. Every withdrawal from that £337,500 is added to any other income you have in the tax year it is taken and taxed at your marginal Income Tax rate. Given the size of the taxable portion, careful planning matters a great deal: spreading withdrawals across twenty-plus years of retirement, using the Personal Allowance and basic-rate band each year alongside the State Pension, can keep much of the tax paid at 0% to 20%, while large lump-sum withdrawals in any single tax year risk both the 40% higher-rate band and, if combined with other income above £100,000, the Personal Allowance taper. The £112,500 tax-free lump sum itself sits well within the standard Lump Sum Allowance of £268,275, so the full 25% is available. Pension providers usually apply an emergency tax code to the first withdrawal in a tax year, correctable via HMRC. Accessing the taxable portion also triggers the £10,000 Money Purchase Annual Allowance if you plan to keep contributing to a pension while working.