How is pension drawdown taxed?

Pension drawdown tax: up to 25% can come out tax-free, to a £268,275 cap. The rest is taxed as income, and the first payment often gets emergency tax.

Free guidance is available before you take anything out: MoneyHelper describes Pension Wise as free, impartial and government-backed. For a view of what a particular withdrawal would cost in tax alongside your other income, an FCA-authorised adviser rings back to work through the numbers, at no cost, once the enquiry form here has been submitted. Below: the tax-free slice, the taxed rest, why the first payment is often over-taxed, and the allowance that can shrink once you start.

How is pension drawdown taxed?

Money taken through drawdown is taxed in two layers: usually up to a quarter of what you have built up can be tax-free, and everything else you take out counts as income. HMRC's PAYE Manual treats the second layer the same way whatever form the payments take: they are pension income, taxed under the normal PAYE rules, and its list of flexible payments includes those from a flexi-access drawdown fund.

• The tax-free slice is limited by the lump sum allowance, explained next.
• The rest is added to your other income for the tax year and taxed at Income Tax rates.
• The provider collects it before the money reaches you, usually through PAYE, using a tax code that is often a temporary emergency one for the first payment.

How drawdown itself works, and whether it suits you, is in the pension drawdown guide; the three stages of pension tax as a whole are on pension tax in the UK. This page stays with what happens to the money once you withdraw it.

How much can you take tax-free from drawdown?

Usually up to 25% of the amount built up in any pension, capped at £268,275 in total. GOV.UK calls that cap the lump sum allowance. It is shared across every scheme you are in, so what you have already used elsewhere counts.

GOV.UK lists what counts towards the lump sum allowance: a pension commencement lump sum, an uncrystallised funds pension lump sum (the 25% tax-free part) and a standalone lump sum. How those routes differ is on flexi-access drawdown versus UFPLS, and the allowance itself on the tax-free lump sum guide.

Two other points from GOV.UK matter for the tax bill:

• Tax-free cash does not eat into your Personal Allowance. The tax-free lump sum leaves that allowance untouched, so it remains available against your taxable income.
• Going over the cap is taxed. A lump sum above your allowances is charged to Income Tax on the extra amount, and the provider takes that off before paying you. A protected allowance may let some people take more tax-free; the details are on the lump sum and death benefit allowance.

GOV.UK's own example shows the split: a pension worth £60,000, of which £15,000 is taken as a tax-free lump sum. The provider "will then take off the tax from the remaining £45,000". Only that remainder is taxed.

Do you pay income tax on pension drawdown?

Yes, on anything beyond the tax-free part, once your total income for the tax year is above your Personal Allowance. GOV.UK says tax is due on your pensions when your total taxable income is above your Personal Allowance, "usually £12,570". Drawdown is only one strand of that total. GOV.UK's list of what else can count takes in the State Pension (old or new), workplace and personal pensions, pay from a job or self-employment, and other income such as rent, savings interest or investments.

So the same withdrawal can cost different people different amounts. GOV.UK's current rates page gives the current tax year as 6 April 2026 to 5 April 2027, and prints this table of the rates paid in each band by someone with the standard Personal Allowance of £12,570 (England, Wales and Northern Ireland):

Scotland differs: "Income tax bands are different if you live in Scotland", and GOV.UK publishes the Scottish rates separately. The other rates are at GOV.UK's Income Tax rates page.

The bands are why size and timing matter. GOV.UK cautions that taking a large amount can mean a higher rate applies, and that extra tax may be owed once the tax year ends. A one-off withdrawal can therefore pull part of your income into a higher band; ways of managing that are on reducing tax on pension drawdown, and how much to take each year is on how much to take from drawdown.

The tax on a given withdrawal turns on the rest of your income, your code and which part of the UK you live in. Weighing a planned withdrawal against everything else you receive can be done with an FCA-authorised adviser in a single phone call; the call-back form here is how to request one.

Why is the first drawdown payment taxed on an emergency tax code?

Because HMRC's PAYE Manual tells the provider to use one unless either of two exceptions applies. If the member has a P45 from a previous job or pension dated on or after 6 April in the current tax year, the administrator operates the code on that P45, on a Month 1 basis. If the scheme already pays the member and holds a tax code for those payments, that code should be used for an extra payment only when the payments are made at the same time. Then comes the general rule: "In all other circumstances, including where individuals have a P45 from the previous tax year, the scheme administrator will use the emergency tax code on a month 1 basis against the first payment and we will issue a tax code to operate against future payments."

GOV.UK explains what an emergency code does. Normally "your tax is worked out based on your total income so far in that tax year", but on an emergency code "your tax is worked out based on what you’re paid in that week or month only", so "You get taxed as if you’re paid that amount every week or month of the year. This could mean you pay the wrong amount of tax." In practice, a large one-off first withdrawal is treated as though you were paid that much every month.

It is a collection method for the first payment, not the end of the story. If the fund is not emptied, HMRC's manual treats it as an ongoing PAYE source, with a code issued for later payments. Because you "may have a different tax code for each pension and job", it is worth checking each one; how a pension tax code works shows how to read yours. Whether your first payment over- or under-collects depends on the rest of your income for the year; an adviser will explain how that plays out for you, free, if you fill in the form here.

How do you claim back emergency tax on drawdown?

Through HMRC, online or by post. GOV.UK says you may be able to claim a tax refund if you have flexibly accessed all or only some of your pension. HMRC's online tool shows which route applies to you, and its by-post page warns that using the wrong form may delay the refund.

Which route fits depends on whether you emptied the pot. The PAYE Manual says that where the fund is extinguished, the administrator issues a P45 which lets the member claim any refund due in-year, and that "Members who have not emptied their pension pot are also able to claim an in-year repayment." The forms, the online route and what happens if you wait are set out in how to claim back emergency tax, and small pots in how small pot pensions are taxed.

A refund is not always final. HMRC says it checks again at the end of the tax year that the right amount was refunded, and will get in touch if it differs. Whether any extra tax is collected or returned then depends on your whole income for the year.

Does taking drawdown income trigger the money purchase annual allowance?

It can: for a flexi-access drawdown fund, the first income payment is a trigger event. HMRC's Pensions Tax Manual (PTM056520) applies this to a fund designated for drawdown on or after 6 April 2015, or to an older drawdown fund re-designated as flexi-access on a transfer to another scheme. For such a fund:

a trigger event occurs immediately before the first payment is made from that member flexi-access drawdown fund.

For this purpose, the first payment means:

• payment of income withdrawal from the member’s flexi-access drawdown fund, or
• payment of a short-term annuity purchased with funds from the member’s flexi-access drawdown fund.

— HMRC, Pensions Tax Manual PTM056520, accessed 21 October 2026

The manual excepts a payment made when all of the fund is attributable to a disqualifying pension credit. Once a trigger occurs, the lower allowance applies for that tax year and every later one. That allowance, the annual limit on money purchase saving for people who have flexibly accessed, is £10,000 for 2026 to 2027 in HMRC's pension schemes rates. So the first taxable withdrawal is often where emergency tax and the lower allowance arrive together. The other triggers, and what the limit means for saving through work, are on the money purchase annual allowance guide; the UFPLS trigger is compared on drawdown versus UFPLS.

Questions about tax on drawdown withdrawals

Is pension drawdown taxed at source?

Mostly, yes. GOV.UK says most providers take Income Tax off through PAYE before paying you, then send a P60 after the tax year ends showing what was deducted. If you have more than one provider, each may use its own code.

How do I work out the tax on a drawdown withdrawal?

GOV.UK has an online estimator for tax on pension income. It asks for your State Pension, private pension and other taxable income for the year, and you can find it on GOV.UK's "What's taxed" page. Without those details, any single figure for a given withdrawal would be a guess.

Can I take drawdown without paying tax?

Partly. The tax-free slice is not taxed, and GOV.UK says "You will not usually pay any tax if your total annual income adds up to less than your Personal Allowance - this is usually £12,570." Anything taxable you take on top of other income is added to that total.

Do I put drawdown income on a tax return?

GOV.UK says that if you send a Self Assessment return, it must include income from your State Pension and private pensions, so drawdown income belongs on it. Whether you need to file one is a separate question, answered on pension income and tax returns.

Is there a tax charge for paying into a pension after taking money out?

There can be. GOV.UK warns that paying money back in once you have taken cash out may bring a tax charge. The main limit is the allowance described above; pension recycling is the related topic.

Your next step

Drawdown tax comes down to three questions: how much of a withdrawal is tax-free, how the rest stacks on your other income, and what the provider deducts first. The pot also stays invested, so, as MoneyHelper puts it, "its value can rise and fall until you take the money" and "your retirement income is not guaranteed". Pension Wise is a free place to start; for a view built around your own pots, State Pension and plans, the short form below is how to reach an FCA-authorised adviser for a no-cost call about your own figures.

Sources: GOV.UK, Lump sum allowance; Tax when you get a pension: what’s tax-free, what’s taxed and how your tax is paid; GOV.UK, Income Tax rates and Personal Allowances; GOV.UK, Emergency tax codes; HMRC PAYE Manual, PAYE94055; HMRC, Claim a tax refund on your pension and by post; HMRC Pensions Tax Manual, PTM056520 and PTM056510; HMRC, Pension schemes rates; MoneyHelper, Pension Wise and pension drawdown explained (archived copies).