This page shows what the same £10,000 costs in tax depending on which wrapper it leaves, why a conventional drawdown order existed, and how the April 2027 pension change rewrites its last chapter. One fictional saver, every figure traced.
Retirement savings usually sit in up to three wrappers: an ISA, a pension, and a general investment account (GIA). Withdrawing the same £10,000 costs a different amount in tax from each, and the gap is the whole reason drawdown order matters.
| £10,000 withdrawn from | Basic-rate taxpayer | Higher-rate taxpayer | Why |
|---|---|---|---|
| ISA | £0 | £0 | Withdrawals are entirely tax-free at any income level |
| GIA (sale with 40% gain content, annual exempt amount already used) | £720 | £960 | Only the £4,000 gain is taxed, at CGT rates of 18% or 24%; within the £3,000 exempt amount the cost is £0 |
| Pension (taken as a lump with 25% tax-free, the rest as income) | £1,500 | £3,000 | £2,500 is tax-free cash; the remaining £7,500 is income taxed at 20% or 40% |
Two readings before anyone concludes "pension last, always". The pension figures assume the personal allowance is already used by other income. For someone with no other income, the first slice of pension income falls inside the £12,570 allowance and the bill can be £0, which the worked year below uses. And the GIA figures depend entirely on how much of the sale is gain: freshly invested money has little gain and little tax, decades-old holdings can be mostly gain.
Information and guidance only. Not personal advice. Withdrawal-order arithmetic depends on income, gains history, age and estate plans, and the rules themselves change. Investment values can fall as well as rise. Verify decisions with a qualified FCA-authorised adviser before acting.
For years the conventional sequence was: spend the GIA first, then the ISA, and leave the pension until last. Each leg had a reason, and it is worth stating them before seeing which one just changed.
| Leg | The reasoning |
|---|---|
| GIA first | It is the only wrapper taxed while you hold it (dividends, interest, gains), so emptying it first stops the annual leak, and selling gradually uses each year's £3,000 exempt amount |
| ISA second | Tax-free but inside the estate for inheritance tax; no growth-shelter urgency once spending has started, and withdrawals cost nothing |
| Pension last | Tax-relieved growth continues, and (the load-bearing reason) before April 2027 an unused pension passed to heirs outside the estate, free of inheritance tax |
The third row carried most of the weight. A pension was not just a retirement pot: it was the one wrapper the taxman could not reach at death. That made "touch it last, or never" close to a reflex for anyone whose estate might exceed the inheritance-tax thresholds. Keep that reflex in mind at the April 2027 section below.
June is fictional: 61, retired, no other income yet, £400,000 in a SIPP, £150,000 in ISAs, £100,000 in a GIA where roughly 40% of any sale is gain. She needs £40,000 for the year. Here is the same year raised two ways.
| Order A: strict "GIA first" | Order B: blend the wrappers | |
|---|---|---|
| Pension | Untouched | £16,760 crystallised: £4,190 tax-free cash, £12,570 income exactly covered by the personal allowance |
| GIA | £40,000 sold: £16,000 gain, £13,000 taxable after the £3,000 exempt amount | £7,500 sold: £3,000 gain, exactly the exempt amount |
| ISA | Untouched | £15,740 withdrawn |
| Tax paid | £2,340 (CGT at 18%) | £0 |
| Allowances wasted | The whole £12,570 personal allowance, unused | None |
The point is not that order B is "the answer": it is that a strict first-this-then-that rule quietly wastes allowances that reset every year. June has a personal allowance, a CGT exempt amount, and tax-free cash, and only a blend uses all three. The cost of the strict rule in this single year is £2,340, every year the pattern repeats. There is a price for order B too: crystallising pension and drawing taxable income has knock-on effects (the £10,000 MPAA if she draws taxable income flexibly, and using up tax-free cash within the £268,275 lump sum allowance), which is why this is arithmetic to understand, not a recipe to copy.
From 6 April 2027, unused pension funds are included in the estate for inheritance tax. This received Royal Assent on 18 March 2026: it is law, not a proposal. Our April 2027 page covers the mechanics; here is what it does to drawdown order.
The old logic said: die with the pension untouched and it passes free of inheritance tax. The new arithmetic, for an estate over the thresholds: £100 of unused pension is first reduced by 40% inheritance tax to £60, and the beneficiary then pays income tax on withdrawals at their own rate. At 40% that leaves £36; at 45% it leaves £33. An effective loss of up to 67% is the new deathbed value of the wrapper that used to pass whole.
That flips the last row of the old table for estates above the thresholds. Where "pension last" once did double duty (tax-sheltered growth plus inheritance shelter), it now shelters growth only, and dying with a large untouched pension can become the most expensive outcome rather than the cheapest. Drawing pension income earlier, at basic rate, and gifting or spending it, starts to compare well against a 67% terminal rate. For estates comfortably under the thresholds, little changes: the inheritance-tax leg never applied to them in the first place.
Status: Enacted (Royal Assent 18 March 2026, effective 6 April 2027). Published 7 August 2026 · last verified 7 August 2026.
Order is personal arithmetic. The variables that move it most, and that a single worked year cannot settle:
A related worked page: how a retired couple draws £48,000 with no tax at all stacks the same allowances June used, twice over.
Methodology. Rates and allowances from rules bundle UK-2026.1.1 (tax year 2026/27): personal allowance £12,570, CGT exempt amount £3,000, CGT 18% / 24%, income tax 20% / 40%, tax-free cash 25% within the £268,275 lump sum allowance, MPAA £10,000, IHT 40%. Wrapper table: pension £10,000 as 25% tax-free plus 75% taxed at the stated rate; GIA assumes 40% of sale proceeds are gain. June's order B: £16,760 crystallised so that 75% equals the personal allowance exactly. Inherited-pension chain: £100 × 0.60 × 0.55 = £33. All arithmetic machine-checked before publication. Published 7 August 2026 · figures last verified 7 August 2026.
Sonuswealth is pre-launch. The app runs this ordering arithmetic on your actual wrappers, income and estate position, kept current as rules change.