Drawing a pension in life
Cashing in a pension: the tax in one year or spread out
Emptying a pot in a single tax year stacks all of it on top of your other income. Spreading it changes the bill, often by thousands of pounds.
Cashing in a whole pot, at once or over years
Tax saved by spreading
£8,946
| Tax if taken in one year | £23,946 |
| Tax over 3 years | £15,000 |
| Tax-free part | £25,000 |
Taking a whole pension pot as cash is taxed like a very large pay rise for one year. 25 % of the pot is normally tax free, up to the lump sum allowance of £268,275, and the rest is added to your income for the tax year in which it is paid. Because UK income tax is banded, the same money costs less when it is spread across several years and each slice stays in a lower band. With £20,000 of other income, cashing in a £100,000 pot in 2026/27 leaves £25,000 tax free and costs £23,946 of income tax on the rest. Taking the taxable part in three equal yearly instalments, with the same other income each year, costs £15,000, a saving of £8,946. The difference grows with the pot, because a single year pushes more of it into the higher rate and, above £100,000, into the band where the Personal Allowance is withdrawn.
Law read and sums checked by Radif Partners · Editorial policy · How the tax is worked out
Why one tax year costs more
Income tax is charged band by band on everything received between 6 April and the following 5 April. A pot cashed in one go lands entirely in one of those years. The first slices may still be taxed at the basic rate, but the rest climbs into the higher rate and, for a large pot, into the stretch above £100,000 where the Personal Allowance is clawed back. Spread over three or five years, the same taxable amount fills the lower bands of each year in turn. The bands used by the calculator are the rates and allowances of 2026/27, applied to every year of the spread.
Tax on pots of five sizes
The table cashes in each pot with £20,000 of other income every year, a figure chosen only as an example. The tax-free part is taken once; the taxable rest is either drawn in one tax year or split evenly.
| Pot | Tax free | Tax, one year | Tax, over 3 years | Tax, over 5 years |
|---|---|---|---|---|
| £30,000 | £7,500 | £4,500 | £4,500 | £4,500 |
| £60,000 | £15,000 | £11,946 | £9,000 | £9,000 |
| £100,000 | £25,000 | £23,946 | £15,000 | £15,000 |
| £200,000 | £50,000 | £61,217 | £41,838 | £30,000 |
| £400,000 | £100,000 | £128,717 | £113,838 | £89,730 |
On the smallest pot the saving is modest, because most of it fits inside the basic rate band of a single year. On the largest, the one-year bill of £128,717 falls sharply once the taxable part is shared across years. The figures assume the other income stays the same; a salary that stops, or a State Pension that starts, changes them, and you can type your own values into the tool.
The tax-free part has a ceiling
GOV.UK's guide to tax when you get a pension says you can usually take up to a quarter of a pot tax free. Across all your pensions that is capped at £268,275, unless you hold a protection. A person with several pots who took tax-free cash from one of them years ago has less of the allowance left for the next.
Special cases
Very small pots and very small total pension savings have their own rules for taking everything at once, which GOV.UK sets out. Someone under 75 who is expected to live less than a year can usually take the whole pot tax free, within the lump sum and death benefit allowance of £1,073,100. The calculator does not apply either rule.
Leaving the pot instead
From 6 April 2027, a pot left untouched joins the estate for inheritance tax. On a death at 75 or over, the people who inherit it also pay income tax, as GOV.UK explains for inherited pensions, after a deduction for the inheritance tax they bore. Cashing in swaps those future taxes for income tax now, and the cash then sits in the estate unless it is spent or given away. The comparison of a pension and an ISA works through one pound left in each, and the drawdown calculator prices a single withdrawal. The choice depends on age, health, other assets and who inherits; nothing here replaces a regulated adviser's look at your own case.