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Accounts in the United Kingdom

Every kind of account and pension the planner offers in the United Kingdom: what each one is, when money can come out, how it is taxed, and the pages we read the rules from.

Engine 2026Reviewed

Most British retirement savings that you can draw on yourself sit in two places: a pension pot, through work or bought privately, and an ISA. A pension pot can't be reached until the minimum pension age, pays a quarter of itself tax free and taxes the rest as income. An ISA is never taxed at all. Savings outside both sit in an ordinary investment account, and some people also hold an investment bond, a Lifetime ISA or venture capital trust shares.

Each has its own row in the money step. A pension already paid to you as an income, such as a final salary pension or an annuity, goes in the pension step instead, beside your State Pension.

Rules as of the 2026 tax year, read from the authorities on 2026-07-27. Each account lists the pages we read it from.

Accounts you can enter

A new plan starts with 39% in Ordinary investment account, 45% in Pension pot, 16% in ISA, until you replace it with your own accounts. Where that split comes from: ONS Wealth and Assets Survey, April 2020 to March 2022, and HMRC ISA statistics: households aged 55 to 64.

Ordinary investment account

Dividends and interest are taxed each year, and profit above your yearly allowance is taxed when you sell.

Shares, funds, bonds and cash held at a bank or investment platform outside any ISA or pension, sometimes called a general investment account. Interest and dividends are taxed each year once they pass their yearly allowances, and profit on selling is taxed above the yearly capital gains allowance.

When a pension pot pays its tax-free quarter up front, the plan puts that cash here.

How it is taxed, rate by rate, is on the tax page.

In the withdrawal orders
With the ordinary accounts
Pays out
Whenever you like
At the first death
Your partner takes it over, and the gain built up in it is wiped for tax

Pension pot

A workplace pension, a personal pension or a self-invested one. Nothing can come out before 55, or 57 for payments from April 2028. A quarter comes out tax free, up to £268,275 over your life; the rest is taxed as income.

A defined contribution pension is a pot of investments in your name: a workplace pension, a personal or stakeholder pension, or a self-invested personal pension (SIPP). Contributions get tax relief on the way in, which the plan does not model, and nothing is taxed while the money stays invested.

The pot cannot pay you anything before the minimum pension age. The plan leaves it untouched until then, even in a year when everything else runs short, and counts that year as one your money did not cover.

A quarter of what it pays is tax free, up to £268,275 over your life across all your pensions. The law does not raise that figure with prices, and neither does the plan. The other three quarters are taxed as income, on the same scale as your State Pension. You choose how the quarter comes out. On the usual route, which the plan assumes unless you change it, it is paid as one lump at the age you choose and moves into your ordinary investment account, and the rest of the pot becomes a pension in drawdown. On the other route the pot stays as it is and a quarter of every withdrawal is tax free until the £268,275 is used.

If one of a couple dies before 75, the plan lets the surviving partner draw the pension they leave free of income tax. From 75 it is taxed as the survivor's income.

In the withdrawal orders
With the accounts taxed on the way out
Before the earliest age
Nothing comes out before the age the law sets for it
Pays out
Whenever you like
In a couple
Whose it is changes the tax, so the planner asks
At the first death
It becomes a different kind of account for your partner, as described above
What the planner asks about it
  • How you take the tax-free quarter We assume: up front, as a lump.
  • Age you take the lump From the earliest age it pays out to 100. We assume your retirement age.
Where the model simplifies

  • We model the tax-free quarter of a pension and its 268,275 lifetime cap, and that from April 2028 a private pension cannot be touched before 57. We do not model the limits on paying in: a yearly allowance of 60,000 that tapers on high incomes, and the cut to 10,000 a year for good once you take a single pound of flexible income. If your plan keeps paying into a pension after drawing from one, it may be paying in more than the law allows tax relief on.

    Your real tax is higher/anyone still paying into a pension after taking flexible income from one

  • We cap your tax-free pension cash at the 268,275 lump sum allowance. A few people have a protection from earlier rules that allows more, which we do not apply, so for them we show too much tax. We also never take cash above the allowance as a taxable lump at the start; it simply stays in the pension and is taxed when drawn. A pension held jointly by a couple uses both partners' allowances.

    Your real tax is lower/anyone with a pre-2024 protection, or two large pots drawn together

  • When your pension pays its tax-free quarter up front, we put that cash in your ordinary investment account, where its future growth is taxed. Many people would spend it, or move some of it into an ISA each year, where growth is tax free. So if that is your plan we show a little too much tax on that money in later years.

    Your real tax is lower/anyone taking the tax-free quarter up front who would shelter it in an ISA

  • A pension pot worth 10,000 or less can be cashed in whole, a quarter tax free, without using any of your 268,275 tax-free cash allowance. We never take that route on our own, so each such pot uses up to 2,500 of your allowance in our model. That matters only if your other pensions are large enough to reach the allowance.

    Could go either way/up to £2,500 once/anyone with a small pension pot beside pensions near the allowance

  • If one of a couple dies before 75, we treat the pension they leave as paid to the survivor free of income tax, which is the rule. It holds only if the scheme sets the pot up for the survivor within two years and it is not an old capped drawdown fund from before April 2015. We assume both conditions are met, so where they are not we understate the tax.

    Your real tax is higher/couples where one person dies before 75 holding a pension whose scheme is slow to act, or an old capped drawdown fund

The law behind it
FA 2004 s.165, s.279(1) (normal minimum pension age), as amended by FA 2022 s.10

Pension already in drawdown

A pension you have started drawing from, its tax-free cash already taken. Every pound you take out is taxed as income.

Flexi-access drawdown is what a pension pot becomes once its tax-free quarter has been paid. The rest stays invested, and you take what you want when you want, with no yearly minimum or maximum. Every pound is taxed as income, because the tax-free part has been used already.

Enter only the part already in drawdown. Any part of the pot you have not started drawing from goes in the pension pot row, where its own tax-free quarter is still to come. As with a pot, drawdown left by a partner who dies before 75 pays the survivor free of income tax.

In the withdrawal orders
With the accounts taxed on the way out
Pays out
Whenever you like
At the first death
It becomes a different kind of account for your partner, as described above
Where the model simplifies

  • If one of a couple dies before 75, we treat the pension they leave as paid to the survivor free of income tax, which is the rule. It holds only if the scheme sets the pot up for the survivor within two years and it is not an old capped drawdown fund from before April 2015. We assume both conditions are met, so where they are not we understate the tax.

    Your real tax is higher/couples where one person dies before 75 holding a pension whose scheme is slow to act, or an old capped drawdown fund

The law behind it
FA 2004 Sch 28 para 8A (flexi-access drawdown fund); ITEPA 2003 s.579A

ISA

Cash or stocks and shares. No tax on the interest, the dividends or the profit, and nothing to put on a tax return.

An individual savings account (ISA) holds cash, or stocks and shares, and nothing inside it is ever taxed: not the interest, not the dividends, not the profit on selling, and not what you take out. You can pay in up to £20,000 a year across all your ISAs in the 2026/27 tax year.

Because nothing in it is taxed, money from an ISA never counts towards your income, so drawing on it leaves the tax on everything else unchanged. That is most of its value in retirement.

In the withdrawal orders
With the tax-free accounts
Pays out
Whenever you like
At the first death
Your partner takes it over as it stands
The law behind it
ITTOIA 2005 s.694; Individual Savings Account Regulations 1998 (SI 1998/1870)

Lifetime ISA

Tax free from 60. Money taken out before then loses a quarter of what you take.

A Lifetime ISA is an ISA for a first home or for later life. You open it before 40 and pay in up to £4,000 a year until 50, and the government adds a 25% bonus on top.

From 60 it works like any other ISA: nothing in it is taxed. Before 60, taking money out for any reason but a first home or terminal illness costs 25% of what you take, which claws back the bonus and a little of your own money. The plan takes money out before 60 only if you allow it, and only once everything you can reach without a charge has been spent.

In the withdrawal orders
With the tax-free accounts
Before the earliest age
Before 60, only by cashing it in at a 25% charge, and only if you allow it
Pays out
Whenever you like
At the first death
Your partner takes it over as it stands
What the planner asks about it
  • Cash it in early if the plan runs short On unless you turn it off.
Where the model simplifies

  • Money taken out of a Lifetime ISA before 60 loses a quarter of what is withdrawn, and we charge that. The law waives it for a first home or terminal illness, which we do not model, because this plan's money is for retirement.

    Your real tax is lower/anyone using a Lifetime ISA for a first home

The law behind it
ISA Regulations 1998 reg 8B and Sch 3 (withdrawal charge 25%), as amended by SI 2017/183

Investment bond (UK)

What you paid in comes back first, untaxed. Profit after that is taxed as savings income, with 20% counted as already paid.

A UK investment bond is a life insurance policy used as an investment: you pay in a lump, the insurer invests it, and you cash in all or part of it later. The insurer pays tax on the fund as it goes, so nothing reaches your tax return while you hold it.

When money comes out, what you paid in comes back first, untaxed. Anything beyond that is profit, taxed as savings income on top of your other income for the year. Because the insurer has already paid tax inside the fund, 20% of the profit counts as paid: a basic rate taxpayer owes nothing more, a higher rate taxpayer pays the difference, and the 20% is never refunded.

If the person whose life the bond is written on dies, the bond ends and its profit is taxed then, on that person's last tax return. The plan takes it at the basic rate, so nothing more is due on a UK bond, and moves the money into the survivor's ordinary account. A bond written on both your lives runs on to the second death, and the plan reads one you own together that way.

In the withdrawal orders
With the ordinary accounts
Pays out
Whenever you like
At the first death
It ends, and its value is paid into your partner's ordinary account, with no tax on its gain. A policy written on both your lives carries on until the second death
Where the model simplifies

  • An investment bond pays back what you put in first, untaxed, and we tax what comes out beyond that as savings income, less the 20% already paid on a UK bond. Two rules change when the tax falls, not how much: taking out more than 5% a year of what you paid in can make part of it taxable early, and a large gain taxed in one year gets top-slicing relief, which we do not give. So in the year you cash in a big bond we can show too much tax.

    Your real tax is lower/anyone cashing in a large investment bond in one year, or holding interest beside a bond gain

  • When the person whose life an investment bond is written on dies, the law taxes its whole gain then, as the dead partner's income in their last tax year, with a relief that can keep it out of a higher rate band. We charge it at the basic rate at that moment: 20 percent on an offshore bond and nothing more on a UK one, whose gain counts as already taxed at 20 percent. A higher rate taxpayer owes more, and someone with unused allowances owes less. A bond written on both your lives pays out on the second death, and we leave it running.

    Could go either way/a couple holding an investment bond written on one partner's life

The law behind it
ITTOIA 2005 Part 4 Chapter 9 (ss.461-546); ITA 2007 s.1012, ss.535-537

Investment bond (offshore)

What you paid in comes back first, untaxed. Profit after that is taxed as savings income.

An offshore bond is an investment bond from an insurer based outside the UK. It works like a UK bond, except that the fund grows with no tax taken inside it.

What you paid in still comes back first, untaxed. Profit beyond that is taxed as savings income at your own rates, with nothing counted as already paid.

If the person whose life the bond is written on dies, the bond ends and its profit is taxed then, on that person's last tax return. The plan takes it at the basic rate, 20%, and moves the rest into the survivor's ordinary account. A bond written on both your lives runs on to the second death, and the plan reads one you own together that way.

In the withdrawal orders
With the ordinary accounts
Pays out
Whenever you like
At the first death
It ends, and its value is paid into your partner's ordinary account, less 20% of the gain built up in it. A policy written on both your lives carries on until the second death
Where the model simplifies

  • An investment bond pays back what you put in first, untaxed, and we tax what comes out beyond that as savings income, less the 20% already paid on a UK bond. Two rules change when the tax falls, not how much: taking out more than 5% a year of what you paid in can make part of it taxable early, and a large gain taxed in one year gets top-slicing relief, which we do not give. So in the year you cash in a big bond we can show too much tax.

    Your real tax is lower/anyone cashing in a large investment bond in one year, or holding interest beside a bond gain

  • When the person whose life an investment bond is written on dies, the law taxes its whole gain then, as the dead partner's income in their last tax year, with a relief that can keep it out of a higher rate band. We charge it at the basic rate at that moment: 20 percent on an offshore bond and nothing more on a UK one, whose gain counts as already taxed at 20 percent. A higher rate taxpayer owes more, and someone with unused allowances owes less. A bond written on both your lives pays out on the second death, and we leave it running.

    Could go either way/a couple holding an investment bond written on one partner's life

The law behind it
ITTOIA 2005 Part 4 Chapter 9 (ss.461-546); ITA 2007 s.1012, ss.535-537

Kinds of pension

A pension paid to you as an income goes in the pension step, not here. Choose its kind there and the plan taxes it by that kind's rules; leave it on standard and it is taxed like a state or workplace pension.

Final salary or career average pension (defined benefit)

Taxed in full as income.

If you take part of the pension as a lump sum when it starts, enter the lump in today's money beside the reduced pension. The tax-free part is capped two ways: at a quarter of the lump plus twenty times the yearly pension, and at what is left of your £268,275 lump sum allowance, the most you can take tax free across all your pensions. Any lump above that is taxed as income in the year it is paid.

Where the model simplifies

  • We cap your tax-free pension cash at the 268,275 lump sum allowance. A few people have a protection from earlier rules that allows more, which we do not apply, so for them we show too much tax. We also never take cash above the allowance as a taxable lump at the start; it simply stays in the pension and is taxed when drawn. A pension held jointly by a couple uses both partners' allowances.

    Your real tax is lower/anyone with a pre-2024 protection, or two large pots drawn together

The law behind it
ITEPA 2003 s.579A; FA 2004 Sch 29 para 2C (commutation, not modelled)

Annuity bought with your pension pot

Taxed in full as income.

This covers an annuity for a fixed number of years bought with pension money too, which is taxed the same way. The pot that bought it is gone, so enter the income here and not the pot in the money step.

The law behind it
ITEPA 2003 s.579A; ITA 2007 s.10

Annuity bought with your own savings

Part of each payment is your own money back and tax free; the rest is taxed as savings income.

An annuity bought from an insurer with savings that were never in a pension. The insurer works out how much of each payment is your own money coming back, from official tables, and tells you. Enter that yearly amount as the tax-free part; left empty, the plan taxes the whole payment.

The rest of each payment is savings income, so it can fall within the starting rate for savings and your personal savings allowance.

The law behind it
ITTOIA 2005 ss.717-720; ITA 2007 s.18(3)(b)

Where other things you hold go

Venture capital trust shares
Enter them as an ISA: their dividends and the profit on selling are free of tax, as in an ISA.
State Pension, final salary pensions and annuities
Enter them in the pension step as an income, choosing the kind for anything other than the State Pension. They are taxed as income for as long as they pay.
A pension you inherited
There is no row of its own: the plan creates one only when a partner dies inside the plan. If the person who left it died before 75, what you draw is free of income tax, so the ISA row taxes it the same way. If they died at 75 or later, it is taxed as income, as the drawdown row is.
Premium Bonds
There is no row for them. Prizes are tax free, as an ISA's returns are, but they are a prize draw rather than an investment, and the plan grows every account with your investment mix.
Gilts and corporate bonds you hold directly
Enter them in the ordinary investment account. Their interest is taxed there correctly. The law also exempts profit on selling gilts and qualifying corporate bonds from capital gains tax, which the plan does not apply, so it can show slightly too much tax on them.

New rules not in the model yet

ISA changes from April 2027
From 6 April 2027 you can put at most £12,000 a year into cash ISAs while you are under 65, within the same £20,000 overall, and interest on cash held inside a stocks and shares ISA is taxed. This is law. The plan does not apply it yet.
Higher tax on savings income from April 2027
From the 2027/28 tax year the rates on savings income rise to 22%, 42% and 47%. Profit on an investment bond is savings income, so it will cost more, and a UK bond's profit will count 22% as already paid. This is law. The plan still charges today's rates.
Pensions and inheritance tax from April 2027
For deaths from 6 April 2027, most pension money left unspent counts towards inheritance tax. The plan shows what is left at the end before any inheritance tax, so this does not change its numbers.