by Asim Abbas
11 November 2026 
Tax on pension withdrawals: tax-free cash, drawdown and emergency tax
Tax on pension withdrawals: tax-free cash, drawdown and emergency tax
From age 55, rising to 57 in April 2028, you can take money from most private pensions. Usually 25% is tax-free and the rest is taxed as income.
- Usually 25% tax-free, up to £268,275
- The rest is taxed as income
- First withdrawals often use an emergency tax code
- Reclaim overpaid tax using forms P55, P53Z or P50Z
How and when you withdraw makes a big difference to the tax you pay, and first withdrawals are often taxed too much under emergency codes.
This guide explains tax-free cash, drawdown, lump sums and how to reclaim overpaid tax.
Ways to take your pension
| Option | Tax treatment |
|---|---|
| Tax-free cash, then drawdown | 25% tax-free up front, later withdrawals taxed as income |
| Uncrystallised lump sums | Each withdrawal 25% tax-free, 75% taxable |
| Annuity | Tax-free cash, then income taxed through PAYE |
| Small pots | Up to three pots of £10,000 or less, 25% tax-free |
The lump sum allowance
Since the Lifetime Allowance was abolished in April 2024, tax-free cash is capped by the Lump Sum Allowance of £268,275 across all your pensions, unless you have protection for a higher amount.
Income tax calculator
See tax on your pension income.
Emergency tax on first withdrawals
When you first take a taxable amount, your provider often doesn’t have your tax code, so it uses an emergency code on a month 1 basis. This treats the withdrawal as if you’ll receive the same every month, leading to big overpayments.
Gary takes a one-off £20,000 taxable withdrawal in May 2026. On an emergency month 1 basis, his provider deducts about £7,400. If his other income is £15,000, his true tax on the withdrawal is about £4,000. He can reclaim the difference straight away using form P55 rather than waiting until the year end.
Reclaiming overpaid tax
- P55: partial withdrawal, not taking more this year
- P53Z: you’ve emptied the pot and have other income
- P50Z: you’ve emptied the pot and have no other income
HMRC usually repays within 30 days.
Fixed-fee accountancy support
Transparent monthly packages for sole traders, landlords and limited companies. Fixed fees agreed upfront, VAT included.
Get a fixed-fee quoteCall 0161 531 4179The Money Purchase Annual Allowance
Once you take taxable income flexibly, your annual allowance for future money purchase contributions falls from £60,000 to £10,000. Taking only tax-free cash doesn’t trigger it.
Planning withdrawals
- Spread withdrawals to stay in the basic rate band
- Use your personal allowance in years with little other income
- Watch the £100,000 taper
- Consider the State Pension, which uses most of the personal allowance
- From April 2027, unused pensions will count towards Inheritance Tax, which may change the order you spend your assets in
See HMRC’s guidance on tax on your pension, our Inheritance Tax 2026 guide and our Self Assessment service.
What should I do next?
Lump sum or drawdown.
Avoid emergency tax.
P55, P53Z or P50Z.
Frequently Asked Questions
How much of my pension is tax-free?
Usually 25%, up to the £268,275 Lump Sum Allowance.
Why was I emergency taxed on my pension?
Providers often use a month 1 emergency code on the first withdrawal.
How do I reclaim pension emergency tax?
Use P55, P53Z or P50Z, depending on your situation.
When can I access my pension?
From 55, rising to 57 from April 2028.
Does taking tax-free cash reduce my annual allowance?
No. Only taking taxable income flexibly triggers the £10,000 MPAA.
Need help with this? Wingate Accountants offers fixed-fee online accountancy support across the UK. Call 0161 531 4179 or request a quote at wingateaccountants.co.uk.
About the Author
Asim Abbas
I’m Asim Abbas, founder of Wingate Accountants and a Chartered Certified Accountant. I help sole traders, landlords and directors stay on top of their tax with fixed fees and plain-English advice.
