Tax on a £20,000 pension withdrawal — staying in the basic rate band.
How much tax will you pay on a £20,000 pension withdrawal? Calculate the tax-free portion, taxable amount, and net payment for 2025/26.
A £20,000 pension withdrawal is a popular size for annual drawdown — enough to provide meaningful income alongside the state pension without crossing into higher rate tax for most people. With UFPLS treatment, £5,000 is tax-free and £15,000 is taxable. Combined with a full state pension of around £12,000, your total taxable income would be roughly £27,000 — still comfortably within the basic rate band which runs to £50,270. The tax on the taxable portion at 20% would be approximately £3,000, giving you £17,000 net. This is a common sweet spot for tax-efficient drawdown: enough to live on when combined with state pension, but not so much that you trigger higher rate tax. Remember that taking flexible pension income triggers the Money Purchase Annual Allowance, limiting future contributions to £10,000 per year.