How much tax is there on a pension withdrawal?
Usually 25% of a defined contribution pension withdrawal is tax-free. The other 75% is added to your income for the tax year and taxed at your normal income tax rates, so the tax depends on your pay and other income, not just on the withdrawal.
That is why the same £20,000 can cost very different amounts. If you have no other income, much of the taxable part falls into your £12,570 personal allowance. If you are still working part-time, it sits on top of your pay and is taxed at the rate the top of your income reaches: 20%, 40% or 45% in England, Wales and Northern Ireland, or 19% to 48% in Scotland.
- Emergency tax on the first payment. Providers often tax a first withdrawal under an emergency code on a month 1 basis, so you may pay too much at first. You can claim it back from HMRC, or it is usually put right later in the year. See GOV.UK: Tax when you get a pension.
- Money Purchase Annual Allowance. Once you take taxable money flexibly, tax-relieved contributions to defined contribution pensions are usually limited to £10,000 a year. Taking only tax-free cash does not trigger it. This matters if you are still working and paying in.
- Lump Sum Allowance. Your tax-free cash across all pensions is capped at £268,275 in total, unless you have a protection.
- No National Insurance. NI is not paid on pension income, whatever your age.
The 60% band between £100,000 and £125,140
Once your total income goes over £100,000, you lose £1 of personal allowance for every £2 above it. Between £100,000 and £125,140 that makes each extra £1 cost 60p in tax in England, Wales and Northern Ireland, and 67.5p in Scotland.
It happens because each £1 is taxed at 40% (45% in Scotland), and it also removes 50p of allowance, which is then taxed at the same rate. A large one-off withdrawal on top of a decent salary can land in this band without you noticing. The calculator flags it when it applies.
Worked example
This is an example, not a real person. Sam works part-time in England, earning £27,000 this tax year, and takes £20,000 from a defined contribution pension, with 25% of the withdrawal tax-free. Sam has no State Pension yet and no other income.
- Tax-free part: 25% of £20,000 = £5,000.
- Taxable part: £15,000, added to Sam’s £27,000 pay, making £42,000.
- Income tax: £2,886 on the pay alone, £5,886 with the withdrawal. The withdrawal adds £3,000, all at the 20% basic rate.
- Effective rate: 15% of the £20,000 withdrawal. Sam receives £17,000 once the right tax is paid.
- Spreading it: on these assumptions, taking it over 2 or 3 tax years would not change the tax, because every pound already lands in the basic rate band.
- Emergency tax: if the provider used an emergency code on a month 1 basis, roughly £5,129 could be deducted at first, about £2,129 more than Sam owes. That can be claimed back.
Spreading starts to matter once a withdrawal pushes income into a higher band. With the same £27,000 of pay in England:
| Withdrawal | Extra tax in 1 year | Over 2 years | Difference |
|---|---|---|---|
| £20,000 | £3,000 | £3,000 | No change |
| £40,000 | £7,346 | £6,000 | £1,346 less |
| £60,000 | £13,346 | £9,000 | £4,346 less |
These figures assume the same pay each year and today’s tax rules. Real life rarely stays that tidy, which is why it can help to look at withdrawals alongside how much you plan to work in each year of your glide.
Questions people ask
How much tax will I pay on my pension lump sum?
Usually the first 25% is tax-free and the rest is added to your other income for the tax year and taxed at your usual rates. So the tax depends on your pay, State Pension and other income as well as the withdrawal. With £27,000 of part-time pay in England, a £20,000 withdrawal adds about £3,000 of tax.
Is 25% of my pension tax-free?
For most defined contribution pensions, yes. You can usually take up to 25% tax-free, either as one lump sum or as a quarter of each withdrawal. Across all your pensions the tax-free total is capped by the Lump Sum Allowance of £268,275, unless you have a protection.
Why was I emergency taxed on my pension?
When you first take taxable money, your provider often has no tax code for you yet, so it uses an emergency code on a month 1 basis. That treats one payment as if you will get the same every month, so a one-off withdrawal can be heavily overtaxed. You can claim the extra back from HMRC, or it is usually put right later in the tax year.
Does taking a pension while working affect tax?
Yes. The taxable part of the withdrawal is added to your pay, so it is taxed at the rate the top of your income reaches and can push some of it into a higher band. Once you take taxable money flexibly, the Money Purchase Annual Allowance usually limits future tax-relieved contributions to £10,000 a year. Pension income does not pay National Insurance.
How this works and what it assumes
The calculator works out your income tax for the year on your other income alone, then again with the taxable part of the withdrawal added. The difference is the extra tax the withdrawal causes.
- Tax year 2026 to 2027, with a £12,570 personal allowance reduced by £1 for every £2 over £100,000, and the bands for England, Wales and Northern Ireland or for Scotland.
- Defined contribution pensions only. Final salary (defined benefit) pensions work differently.
- 25% tax-free on each withdrawal, or up to 25% of the pot as tax-free cash, assuming none of your £268,275 Lump Sum Allowance has been used.
- No other allowances or reliefs: no Marriage Allowance, Blind Person’s Allowance, pension contributions, Gift Aid or savings and dividend allowances. Other income is treated as ordinary taxable income.
- Spreading splits the amount equally across 2 or 3 tax years, with the same other income each year and the same tax rules.
- The emergency tax figure is a rough illustration using code 1257L (S1257L in Scotland) on a month 1 basis for a single payment. Your provider may do it differently.
Guidance, not advice. This tool gives a simplified estimate based on the information you enter. It is not financial advice, and it does not suggest how or when you should take your pension. Your real tax depends on your tax code and full circumstances. For free, impartial help, visit MoneyHelper or book a Pension Wise appointment if you are 50 or over.
Sources: GOV.UK: Tax when you get a pension · GOV.UK: Claim a tax refund on a pension · GOV.UK: Annual allowance · GOV.UK: Lump sum allowance · GOV.UK: Rates and thresholds 2026 to 2027.
Last checked 9 October 2026 · How our tools work