Tax on a £250,000 pension withdrawal — the case for phased withdrawal.
How much tax will you pay on a £250,000 pension withdrawal? Learn why phased drawdown could save you tens of thousands in tax.
A £250,000 pension withdrawal taken in one go is a very expensive decision from a tax perspective. With UFPLS treatment, £62,500 is tax-free and £187,500 is taxable. Your total taxable income, including state pension, could reach £200,000 — firmly in 40% territory with no personal allowance. The tax bill could be £60,000-£70,000. Phasing this over five years at £50,000 per year could save £20,000 or more in total tax. Also note the MPAA trigger: once you take flexible pension income, your annual allowance for future pension contributions drops from £60,000 to £10,000. If you are taking this withdrawal to fund a property purchase or major investment, consider whether a pension-backed loan or other structure might be more tax-efficient. At a quarter of a million pounds, professional financial advice will almost certainly pay for itself many times over in tax savings alone.