Last updated: 14 October 2026
Can you still take 25% tax-free after you’ve started pension withdrawals?
It depends on how you’ve withdrawn so far. Each time you take money from a defined contribution pension, you either take a tax-free lump sum or use up your tax-free entitlement. If you moved your pot into drawdown and took the full 25% tax-free cash at the start, there’s no more tax-free cash on that pot. If you’ve been taking uncrystallised lump sums (UFPLS), each payment is 25% tax-free and 75% taxable, so the remaining pot still carries 25% tax-free. Overall, tax-free cash is capped by the lump sum allowance of £268,275.
How tax-free cash works with each option
| Option | Tax-free element |
| Drawdown: take 25% tax-free cash, rest into drawdown | 25% at the start; later drawdown income fully taxable |
| Phased drawdown: crystallise part of the pot at a time | 25% of each part crystallised; uncrystallised funds keep their entitlement |
| UFPLS (lump sums from the uncrystallised pot) | 25% of each payment tax-free |
| Annuity | Usually take 25% tax-free first, then the annuity is taxable |
The lump sum allowance
Since 6 April 2024, the lifetime allowance has been replaced by the lump sum allowance (£268,275) and the lump sum and death benefit allowance (£1,073,100). Your total tax-free cash across all pensions can’t exceed £268,275 unless you have protection.
Example
Mark has a £200,000 pot. He crystallises £80,000, taking £20,000 tax-free and putting £60,000 into drawdown. The remaining £120,000 is uncrystallised. Later, he can crystallise that and take a further £30,000 tax-free. Any income taken from the £60,000 in drawdown is fully taxable.
The money purchase annual allowance
Once you take taxable income through flexi-access drawdown or UFPLS, the money purchase annual allowance (MPAA) applies. You can then only pay £10,000 a year into defined contribution pensions with tax relief. Taking only tax-free cash doesn’t trigger the MPAA.
Emergency tax on first withdrawals
Pension providers often use an emergency tax code on the first taxable withdrawal, so you may pay too much tax. You can claim it back using HMRC forms P55, P50Z or P53Z, depending on your situation, or wait for HMRC to correct it at the year-end.
Inheritance tax from April 2027
From 6 April 2027, most unused pension funds and death benefits will be included in your estate for inheritance tax. That could change whether it makes sense to leave money in your pension or take it out over time.
Planning withdrawals over several years
Spreading withdrawals can keep more of your income in the basic-rate band. Phased crystallisation also lets you take a mix of tax-free cash and taxable income each year, so you can control your tax. For example, taking £16,760 a year through UFPLS gives £4,190 tax-free and £12,570 taxable, which is covered by the Personal Allowance if you have no other income. Review the plan each year, especially once your State Pension starts.
Frequently asked questions
Can I take 25% tax-free from each pension?
Yes, from each pot, subject to the overall £268,275 allowance.
Is drawdown income taxed?
Yes, as income at your marginal rate.
Can I take tax-free cash without income?
Yes, through phased crystallisation.
Does tax-free cash affect benefits?
It can count as capital for means-tested benefits.
Related: higher-rate relief on pension contributions and inherited pensions and IHT.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with tax on pension withdrawals. See our personal tax accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 14 October 2026. It is not personal advice, so speak to an accountant about your own situation.
