Tax on pension drawdown income

Income from flexi-access drawdown is taxable in full. The tax-free element of the pot was taken at designation, as the pension commencement lump sum — so each later income payment carries no second 25% and is taxed entirely as pension income at the member’s marginal rate (PTM062701; ITEPA 2003 ss.579A–579D). That is the standard treatment, and the scheme collects the tax through PAYE, like an employer paying salary. Three things then set what a given year’s drawdown actually costs: where the income lands in the bands, which side of the border the member sits, and — for the first payment — the emergency code.

Fully taxable, non-savings, through PAYE

Drawdown income is non-savings income. It stacks at the bottom of the income computation (ITA 2007 s.16): it consumes the personal allowance first, fills the basic rate band (£37,700 for 2026/27), then the higher and additional bands, and pushes savings and dividend income upwards. It counts in adjusted net income too, so heavy drawdown can cross £100,000 and abate the personal allowance at £1 for every £2 (ITA 2007 s.35). None of this needs a special drawdown rule — it is ordinary pension income in the ordinary computation.

PTM062701 ; ITEPA 2003 s.579A ; ITA 2007 s.16 and s.35.

What the bands do to a given withdrawal

Because the income is taxed at its marginal position, the same payment costs very different amounts on different incomes. The worked figures (2026/27, rUK):

The first row is £15,000 less the £12,570 personal allowance, leaving £2,430 at 20%. The last is the £100,000 straddle: the payment lifts adjusted net income to £120,000, cuts the allowance to £2,570, and takes an effective 53.3% of the slice. The pension withdrawal tax calculator runs any combination of drawdown and other income.

The tax year does part of the computation

The bands are annual: each tax year brings a fresh £12,570 personal allowance and a fresh £37,700 basic rate band. The same total drawn across two years is therefore computed differently from one. A member with no other income drawing £30,000 in a single year pays £3,486; drawing £15,000 in each of two years pays £486 a year — £972 in total — because two personal allowances apply instead of one. That is a statement of mechanics, not a recommendation: whether and how to phase a withdrawal depends on the member’s wider circumstances and is the adviser’s call. The calculator illustrates both shapes so the figures are on the table.

Scotland: the same income, a different ladder

For a Scottish taxpayer, drawdown income is devolved non-savings income and is taxed on the Scottish ladder — starter 19%, basic 20%, intermediate 21%, higher 42%, advanced 45%, top 48% — while savings, dividends and the personal allowance stay UK-wide. On a worked case of £30,000 of drawdown income on £60,000 of other income, the slice straddles the Scottish higher and advanced rates and costs £13,050 (£15,000 at 42% plus £15,000 at 45%), against £12,000 for the same case in the rest of the UK. The Scottish taxpayer status switch in the calculator applies the right ladder.

gov.scot Scottish income tax rates and bands ; Scotland Act 2016 ; ITA 2007 s.16.

The first payment: check which code applies

For the first drawdown payment, PAYE94055 permits a current-tax-year P45 code on Month 1 or an existing code for a simultaneous additional payment. Emergency 1257L Month 1 is the fallback. For 2026/27, Table A gives £1,048.26 of code-derived free pay; Tables B to D round the balance down to whole pounds and apply the Month-1 taxable-pay thresholds. A £30,000 first payment suffers £11,878.20 at source against a £3,486 true liability with no other income under England/Wales/Northern Ireland rates — an £8,392.20 modeled over-deduction, recovered through the applicable P55, P53Z or P50Z route where its current conditions are met, or through year-end reconciliation. P55 additionally requires no further regular or flexible payment before tax-year end and a pension body that cannot refund. For whole-pot access, compare the current P53Z and P50Z declarations because P50Z contains detailed work, unemployment-duration, retirement, study, income, pension, timing and benefit alternatives or exclusions that this compact guide does not infer. The month-1 deduction alone does not establish the final annual tax liability. The pension emergency tax calculator computes the deduction, true liability and indicated form. The emergency-tax and reclaim guide explains the timing and evidence; the wider withdrawal picture is in pension withdrawals: how taking money out is taxed.

HMRC PAYE94055 ; gov.uk forms P55 / P53Z / P50Z.