How is pension income taxed in the UK? Drawdown, annuity, defined benefit and the first-payment emergency tax
UK pension income tax 2026/27: Income Tax rates, no NI, tax codes, drawdown vs UFPLS vs annuity vs DB, and emergency tax on your first withdrawal.
Pension income is taxed like other income, without National Insurance
A pension paid by a registered pension scheme is taxable as pension income on the person who receives it (ITEPA 2003 s.579A sets the scope and s.579B the charge; HMRC EIM75400). HMRC's manual says that includes annuities bought with pension funds and drawdown pensions. It is added to everything else you receive in the tax year - State Pension, earnings, rental profit and so on - and taxed at the same rates as earnings.
For 2026/27, outside Scotland (GOV.UK):
- up to £12,570: Personal Allowance, 0%
- £12,571 to £50,270: basic rate, 20%
- £50,271 to £125,140: higher rate, 40%
- over £125,140: additional rate, 45%
The Personal Allowance falls by £1 for every £2 of adjusted net income above £100,000, and is zero from £125,140. Pension income counts towards that, so a big withdrawal in one year can cost you the allowance as well as push income into a higher band. Welsh taxpayers pay the Welsh rates, which for 2026/27 are the same as these (GOV.UK). Scottish taxpayers pay Scottish rates: see below.
No National Insurance. Benefits paid under a registered pension scheme are disregarded in working out earnings for National Insurance (Social Security (Contributions) Regulations 2001, Sch 3 Pt VI para 2(b)). That holds at any age, including if you start drawing a pension at 55 while still working; pay from a job still carries Class 1 National Insurance until you reach State Pension age (GOV.UK).
The 25% tax-free part
You can usually take up to 25% of a pension as a tax-free lump sum, up to £268,275 in total across all your pensions - the Lump Sum Allowance. GOV.UK says the tax-free lump sum does not affect your Personal Allowance; tax is taken off the rest when you draw it (Tax when you get a pension). Protections, the Lump Sum and Death Benefit Allowance, defined benefit commutation and the recycling rule are covered in our 25% tax-free lump sum guide.
Drawdown, UFPLS, annuity and defined benefit: how each is taxed
| How you take it | Tax-free part | Taxable part | Triggers the MPAA? |
|---|---|---|---|
| Flexi-access drawdown | Lump sum (PCLS) when you move money into drawdown: usually up to 25% of the amount you crystallise, which is one-third of the amount that goes into drawdown (PTM063240) | Every withdrawal from the drawdown fund, through PAYE | Yes, at the first taxable withdrawal. Taking only the lump sum does not |
| UFPLS (cash from the pot) | 25% of each payment | The other 75%, taxed as pension income (PTM063300) | Yes, at the first UFPLS |
| Lifetime annuity | Lump sum when you buy it, usually up to 25% | The annuity income, through PAYE | Only if the annuity can go down (other than in prescribed circumstances) |
| Defined benefit scheme pension | Lump sum if you give up (commute) some pension, under the scheme's terms | The pension, through PAYE | No |
Sources: HMRC EIM75400 (scheme pension, lifetime annuity and drawdown are the three authorised pensions, and PAYE applies to all pensions from registered schemes), EIM75420 (lump sums), PTM063300 (UFPLS: 25% not liable to tax, 75% taxed as pension income) and PTM056520 (MPAA trigger events). A defined contribution scheme pension can trigger the MPAA where the scheme has fewer than 11 other pensioners (PTM056520). Normal minimum pension age is 55, rising to 57 from 6 April 2028 (PTM063300).
The tax rates are the same whichever route you use. What differs is timing: drawdown and UFPLS let you choose how much taxable income lands in each tax year, while an annuity or defined benefit pension pays a fixed taxable income. Spreading withdrawals so that each year's income stays within the basic rate band is usually what keeps the total tax down; our UFPLS calculator and drawdown calculator show the difference.
How the provider takes the tax: PAYE and your tax code
Most pension providers deduct Income Tax through PAYE before paying you, and send you a P60 after the tax year showing what was taken. You may have a different tax code for each pension and job (GOV.UK). A code ending in L, such as 1257L, gives the standard allowance; BR or D0 usually means a second pension taxed wholly at the basic or higher rate because the allowance is used elsewhere (GOV.UK). Look up any code in our tax code explainer.
The State Pension shrinks the code
The State Pension is not taxed before you receive it. If you also get a private pension or work, HMRC changes that tax code to collect the tax on the State Pension, and if you have more than one provider only one does so (GOV.UK). A full new State Pension in 2026/27 is £241.30 a week. HMRC taxes a full year as 1 week at the 2025/26 rate of £230.25 plus 51 weeks at the new rate (GOV.UK): £12,536.55. That leaves £33.45 of a standard Personal Allowance, so the code on the private pension becomes 3L and almost every pound of it is taxed. More in is the State Pension taxable?
Emergency tax on the first flexible withdrawal
HMRC's rule (PAYE76170): if you give the provider a P45 dated on or after 6 April of the current tax year, it uses the code on that P45 on a Month 1 basis. In all other cases, including a P45 from the previous tax year, it uses the emergency tax code on a Month 1 basis against the first payment, and HMRC then issues a code for later payments. One exception: if the provider already pays you a pension under a tax code, it may use that code for an extra flexible payment only when the two are paid at the same time. The emergency codes from 6 April 2026 are 1257L W1, 1257L M1 and 1257L X (GOV.UK).
On a Month 1 basis "your tax is worked out based on what you're paid in that week or month only. You get taxed as if you're paid that amount every week or month of the year" (GOV.UK). A one-off withdrawal is taxed as one month's pay, against one-twelfth of the allowance and of each band, as if you received the same sum every month - so most of it falls into the higher and additional rates.
Worked example: a £40,000 first withdrawal
You take £40,000 as a UFPLS from a pot you have never touched, and have no P45 for this tax year. £10,000 (25%) is tax-free; the provider runs the other £30,000 through PAYE on 1257L M1. England, Wales or Northern Ireland, 2026/27 rates, Month 1 deduction worked on HMRC's PAYE table routines:
| Your other income this tax year | Tax deducted on 1257L M1 | Tax actually due for the year | Overpaid |
|---|---|---|---|
| None | £11,878.20 | £3,486.00 | £8,392.20 |
| Full new State Pension (taxable £12,536.55) | £11,878.20 | £5,993.31 | £5,884.89 |
"Tax actually due" is the year's Income Tax on all the income in that row, including the tax on the State Pension, which HMRC would otherwise collect through your code. The figure on your payment statement or P45 is the one any claim uses. No National Insurance is deducted.
Getting it back
If you will take regular payments in the same tax year, HMRC sends the provider a tax code to use for them (PAYE76170), and form P55 is not for you. Otherwise you can claim in-year: online through HMRC's pension tax refund service, or on a printed form (GOV.UK forms page). Which form, from the forms themselves:
- P55: you have flexibly accessed your pension, taken only part of the pot, will not be taking regular payments, and the provider is unable to make the refund.
- P53Z: the payment used up all of your fund, you have a P45 from the provider (it also covers serious ill-health, pension commencement excess and stand-alone lump sums).
- P50Z: the payment used up all of your pot, you have a P45 from the provider, and you have stopped work and do not expect to go back. Not if you expect a new job within 4 weeks, or are claiming Jobseeker's Allowance, taxable Incapacity Benefit, contribution-based ESA or Carer's Allowance.
- P53: a small pot or trivial commutation lump sum.
The forms are for UK residents; non-residents claim under a double taxation agreement instead. HMRC checks again after the tax year ends and contacts you if the amount was different. Step-by-step instructions, what to have ready and common mistakes are in how to claim back tax on a pension withdrawal.
Worked example: a regular pension on top of the State Pension
A defined benefit pension (or an annuity) of £18,000 a year, plus a full new State Pension (taxable amount £12,536.55 on HMRC's 1 + 51 week basis): total income £30,536.55. Income Tax for 2026/27, from the same engine as our salary calculator with no National Insurance:
- England, Wales or Northern Ireland: £3,593.31 a year
- Scotland: £3,563.75 a year
The State Pension on its own would carry no tax, because it sits within the Personal Allowance; the whole bill arises because the £18,000 sits on top of it. The provider usually collects it through a reduced tax code, so it comes out of the £18,000.
Scottish taxpayers
Scottish Income Tax applies to your wages, pension and most other taxable income if you live in Scotland (GOV.UK). Your provider uses a code beginning with S. For 2026/27, with a standard Personal Allowance:
- £12,571 - £16,537: starter rate, 19%
- £16,538 - £29,526: basic rate, 20%
- £29,527 - £43,662: intermediate rate, 21%
- £43,663 - £75,000: higher rate, 42%
- £75,001 - £125,140: advanced rate, 45%
- Over £125,140: top rate, 48%
The Personal Allowance and the 25% tax-free lump sum are the same as in the rest of the UK. See our Scottish Income Tax bands page.
Still paying in? The Money Purchase Annual Allowance
Once you flexibly access a defined contribution pension, the Money Purchase Annual Allowance (MPAA) applies from then on: paying more than £10,000 a year into defined contribution pensions, counting tax relief and employer contributions, triggers a tax charge (GOV.UK). The ordinary annual allowance is £60,000. The trigger is the first UFPLS, or the first payment of income from a flexi-access drawdown fund (PTM056520), so moving money into drawdown and taking only the tax-free lump sum does not start it. Your provider will send you a flexible access statement within 31 days of the first time you flexibly access a pension. If you are still working and contributing, check this before your first withdrawal.
From April 2027: unused pensions and Inheritance Tax
For deaths on or after 6 April 2027, most unused pension funds and death benefits count towards the estate for Inheritance Tax (Finance Act 2026 s.66, commencement in s.71). Model it with our pension IHT calculator.
Related calculators and guides
- Pension drawdown calculator - tax on a drawdown income.
- UFPLS calculator - tax on cash taken straight from the pot.
- 25% tax-free lump sum - the Lump Sum Allowance and protections.
- Claim back tax on a pension withdrawal - P55, P53Z and P50Z step by step.
- Is the State Pension taxable? - how it uses your Personal Allowance.
- Emergency tax codes - what W1, M1 and X mean.
- Pension IHT calculator - the April 2027 change.
Frequently asked questions
Is private pension income taxed in the UK?
Yes. Income from a workplace or personal pension is taxed as pension income at the normal Income Tax rates, added to your other income for the tax year (ITEPA 2003 ss.579A-579B; HMRC EIM75400). In 2026/27 the first £12,570 of total income is usually covered by the Personal Allowance, then 20%, 40% and 45% apply outside Scotland. The tax-free lump sum is not taxable income and does not use your Personal Allowance.
Do I pay National Insurance on my pension?
No. Benefits paid by a registered pension scheme are disregarded when earnings are worked out for National Insurance (Social Security (Contributions) Regulations 2001, Schedule 3 Part VI para 2). Pension income attracts Income Tax only, whatever your age. If you are also employed, Class 1 National Insurance is still due on your pay until you reach State Pension age (GOV.UK).
Why was my first pension withdrawal taxed so heavily?
Unless you give the provider a P45 dated in the current tax year, HMRC tells it to use the emergency tax code on a Month 1 basis for the first flexible payment (PAYE76170). A provider already paying you a pension may instead use your existing code for an extra flexible payment made at the same time. The Month 1 basis gives one-twelfth of your allowance and bands, so a large one-off sum is taxed as if you were paid it every month. In our example a £40,000 withdrawal has £11,878.20 deducted against £3,486.00 actually due when there is no other income.
Which form do I use to reclaim overpaid pension tax?
HMRC lists the forms on its page Claim a tax refund on your pension by post (www.gov.uk/guidance/claim-a-tax-refund-on-your-pension-by-post). P55 if you took only part of your pot, will not take regular payments and the provider cannot refund you. P53Z if the payment used up your whole pot (it also covers serious ill-health and some other lump sums). P50Z if you used up your whole pot, have stopped work and do not expect to go back. P53 for a small pot or trivial commutation lump sum. You can usually claim online instead of posting a form.
Why is the tax code on my private pension so low?
The State Pension is paid without tax taken off, so HMRC collects any tax due on it through the tax code on your private pension or job (GOV.UK, Tax when you get a pension). HMRC counts a full year's new State Pension in 2026/27 as £12,536.55 (1 week at the old rate plus 51 at the new), which leaves only £33.45 of a standard Personal Allowance for the private pension, so its code becomes 3L. If you have more than one private pension, only one of them collects the State Pension tax.
Does taking money from my pension reduce how much I can pay in?
It can. Your first taxable payment from flexi-access drawdown, or your first UFPLS, triggers the Money Purchase Annual Allowance (PTM056520). After that, contributions to defined contribution pensions above £10,000 a year instead of the £60,000 annual allowance trigger a tax charge. Taking only the tax-free lump sum and leaving the rest in drawdown untouched does not trigger it, and nor does a defined benefit pension or a lifetime annuity that cannot go down.
Are Scottish pensioners taxed differently?
Yes. If you are a Scottish taxpayer, Scottish rates apply to your pension income as they do to wages (GOV.UK, Scottish Income Tax). For 2026/27 the Scottish bands above the Personal Allowance are starter rate 19%, basic rate 20%, intermediate rate 21%, higher rate 42%, advanced rate 45%, top rate 48%. Your provider applies them through a tax code starting with S. The tax-free lump sum is tax-free everywhere in the UK.