Answers · UK 2025/26
How is a £750,000 pension pot taxed if I take income drawdown?
From a £750,000 pension pot, you can normally take £187,500 (25%) as a tax-free lump sum, leaving £562,500 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.
Full answer
A £750,000 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 -- £187,500 -- leaving £562,500 in the taxable portion, both comfortably within the £268,275 Lump Sum Allowance that caps how much tax-free cash can be taken overall. Every withdrawal from the £562,500 taxable portion 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 this size means retirement income could realistically sit in the higher-rate band for a substantial number of years even with careful spreading, so many people in this position use a mix of drawdown, a small guaranteed annuity for baseline needs, and deliberate under-withdrawal in years with other taxable income (such as continuing part-time work) to smooth the tax hit. Withdrawing significant sums while still earning other income risks pushing combined income above £100,000, tapering the Personal Allowance, and above £125,140, into the 45% additional rate. Specialist financial advice is strongly recommended for drawdown planning at this scale.
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This answer is informational only and does not constitute financial, tax or legal advice. Figures are for the 2025/26 UK tax year. See our methodology and sources.