Answers · UK 2025/26

How is a £700,000 pension pot taxed if I take income drawdown?

From a £700,000 pension pot, you can normally take £175,000 (25%) as a tax-free lump sum, leaving £525,000 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.

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

Full answer

A £700,000 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. Note that the standard Lump Sum Allowance is capped at £268,275, so 25% of £700,000 (£175,000) is still comfortably within that cap, leaving £525,000 in the taxable portion. Every withdrawal from that £525,000 is added to any other income you have in the tax year it is taken and taxed at your marginal Income Tax rate. A pot of this size demands careful drawdown planning: spreading withdrawals over twenty-five or more years, staying within the Personal Allowance and basic-rate band each year alongside the State Pension, keeps much of the tax at 0% to 20%, while any large single-year withdrawal risks the 40% higher-rate band, the 45% additional rate above £125,140, and the £100,000 Personal Allowance taper if combined with other income. Many people with pots this size use a mix of drawdown and annuity purchase to balance flexibility with guaranteed income. Accessing the taxable portion also triggers the £10,000 Money Purchase Annual Allowance if you plan to keep contributing to a pension while working.