How Much Tax Will You Pay on Pension Drawdown? A UK Guide for 2026/27

It is one of the first questions people ask when they start taking money from a pension: how much reaches my bank account, and how much goes to HMRC? With drawdown the principle is simple — usually a quarter comes out tax-free and the rest is taxed as income — but the amount you pay in a given year depends on how much you take and what else you have coming in. Here is how tax on drawdown works for the 2026/27 tax year, the traps that catch people out, and what decides the final bill.

The two halves of every drawdown pot

When you move a defined contribution pension into flexi-access drawdown, your savings split into two parts for tax purposes. Up to 25% can normally be taken free of income tax — the pension commencement lump sum, or tax-free cash — while the remaining 75% is taxable whenever you draw it. You do not have to take the tax-free cash all at once; you can take it in stages, and we look at the timing choices in how to take your 25% tax-free lump sum and the mechanics in our guide to the PCLS.

There is a ceiling on the tax-free part. Since the lifetime allowance was abolished, the total tax-free cash you can take across all your pensions is capped by the Lump Sum Allowance, which stands at £268,275 for 2026/27. Most people never reach it — it only bites once combined pots pass roughly £1,073,100 — but it matters for larger savers. The 25% figure is about the tax on your withdrawals; it is entirely separate from what the pension itself costs to run. Platform fees, fund charges and any drawdown administration costs are charged by your provider regardless of tax, and you can see how much those vary in our fees and charges guide and our drawdown cost index, or compare platforms such as Hargreaves Lansdown, AJ Bell and Vanguard side by side. This article is about the tax; the product cost is a separate bill.

How the taxable 75% is taxed

The taxable portion of your drawdown is treated as earned income, exactly like a salary or the State Pension. It is added to your other income for the year and taxed at your marginal rate through PAYE, with your pension provider deducting the tax before the money reaches you. For 2026/27 the income tax bands in England, Wales and Northern Ireland are: a personal allowance of £12,570 taxed at 0%; the basic rate of 20% on taxable income from £12,571 to £50,270; the higher rate of 40% from £50,271 to £125,140; and the additional rate of 45% above £125,140.

Because drawdown stacks on top of everything else, the rate you pay is not fixed — it depends on your total income. Suppose the State Pension has already used up most of your £12,570 personal allowance and you then draw £10,000 of taxable income from your pot. With little or none of the allowance left, most of that £10,000 falls into the basic-rate band, so the tax could be up to around £2,000. Take a much larger amount in one go — say £60,000 of taxable drawdown on top of other income — and part of it can be dragged into the 40% band, because the withdrawal is added to your existing income rather than taxed in isolation.

It is your whole income that counts

This is the point most people miss. Tax on drawdown is not calculated on the pension in isolation; it is calculated on your total taxable income for the year. The State Pension is taxable too, but it is paid without any tax taken off, so the tax due on it is usually collected by adjusting the code on your private pension or drawdown income. If you have several income sources — a couple of small pensions, some earnings, savings interest above the allowances — they all sit in the same stack, and your drawdown fills whatever bands are left above them.

That is why timing and coordination make such a difference, and why couples often look at both sets of allowances together, as we explain in the tax-free income stack. Annuity income is taxed in much the same way, at your marginal rate — we compare the two in how annuity income is taxed.

The emergency tax shock on your first withdrawal

Even when your overall position is straightforward, your first taxable withdrawal often has far too much tax taken off. The reason is that pension providers usually apply an emergency, or "Month 1", tax code to a first flexible payment. That code assumes you will take the same amount every month for the rest of the year, so a single £10,000 withdrawal is taxed as though it were part of a £120,000 annual income — pushing chunks of it into the higher and additional rates. The result can be a deduction of thousands of pounds more than you actually owe.

You get the overpayment back. If you are not going to take further payments in the tax year, HMRC's form P55 lets you reclaim it now; form P53Z applies if you have emptied the whole pot and have other taxable income, and P50Z if you have emptied the pot and stopped working. If you do nothing, HMRC reconciles your tax at the end of the year and repays any excess automatically — you simply wait longer for it. We walk through the process in reclaiming emergency tax on pension withdrawals, and the official routes are set out in HMRC's P55 guidance.

Three tax traps drawdown can spring

Beyond the headline rates, a few features of the system catch people who are not expecting them.

The 60% trap. Between £100,000 and £125,140 of income, your personal allowance is withdrawn at the rate of £1 for every £2 you earn above £100,000, disappearing entirely at £125,140. Losing the allowance while also paying higher-rate tax on the same income creates an effective marginal rate of around 60% on that slice. A large drawdown withdrawal that lifts your income into this zone is taxed unusually heavily, as we cover in how to avoid the 60% tax trap.

The Money Purchase Annual Allowance. As soon as you take any taxable income from a defined contribution pension — as opposed to just the tax-free cash — you trigger the Money Purchase Annual Allowance. From that point the most you can pay into money purchase pensions each year with tax relief falls from the standard £60,000 to just £10,000, and you lose the ability to carry forward unused allowance. For anyone still working and contributing, that is a significant restriction, and it is explained in full in the MPAA drawdown trap.

Band-tipping with large lump sums. Because withdrawals are added to your other income, taking a big taxable sum in a single tax year can tip you from the basic rate into the higher rate, or from the higher rate into the additional rate. Spreading the same total across two or more tax years often keeps more of it in the lower bands — one reason phased withdrawals are so common in drawdown.

If you live in Scotland

Income tax on earnings and pensions is devolved, so Scottish taxpayers pay according to Scotland's own bands and rates, which differ from the rest of the UK and include more bands. Your personal allowance and the tax on savings and dividends still follow the UK-wide rules, but the tax on your drawdown income is worked out using the Scottish rates. We set out how this changes the sums in how Scottish income tax affects your pension drawdown, and the current bands are published on gov.uk.

What happens to the tax when you die

Drawdown has its own rules on death, separate from the income tax on your own withdrawals. Broadly, if you die before 75 your beneficiaries can usually take what is left free of income tax; if you die at or after 75 they pay income tax at their own marginal rate on whatever they draw. Inheritance tax is a separate question, and the rules on how unused pensions are treated for IHT are changing. We cover both in what happens to your pension when you die and the 2027 pension inheritance tax changes.

The levers that decide your bill

A handful of factors decide your drawdown tax bill: how much of your 25% tax-free cash you have used; how much taxable income you take in the year; what other income sits alongside it; and whether a withdrawal pushes you across a band or into an allowance taper. The right level of income is not something this guide can prescribe — it depends on your circumstances, your other savings and how long the pot must last — but understanding the mechanics lets you see the tax coming rather than be surprised by it. Some people need to complete a tax return once drawdown begins, covered in do you need to do self-assessment in retirement, and the government-backed MoneyHelper guide to tax in retirement is a useful free reference. If you are 50 or over, Pension Wise offers a free appointment on your options before you start.