Which pot to spend first: pension or ISA?
Updated 9 October 2026. Figures checked against official sources on 9 October 2026.
From 6 April 2027, pension money left when you die counts for inheritance tax. So "spend the ISA first, keep the pension" no longer always pays the least tax.
Worked example: someone aged 66 with a £400,000 pension, a £150,000 ISA and a £450,000 home, spending £30,000 a year. Least tax in total: Tax-smart and Pensions first. Scroll the calculator to "Which pot to spend first" to see all five.
Worked example
Your money lasts to 95, with £153,016 left.
- Age now
- 66
- Retire at
- 66
- Pots
- £550,000
- Take-home wanted
- £30,000 a year
- Plan until
- 95
The five orders, side by side
| Order | Tax while alive | Tax after | Family gets |
|---|---|---|---|
| Tax-smart | £77,693 | £80,016 | £573,000 |
| Tax-free allowance first | £67,035 | £125,912 | £561,085 |
| Pensions first | £77,693 | £80,016 | £573,000 |
| ISAs and savings first | £70,517 | £123,096 | £558,861 |
| Your own order | £70,517 | £123,096 | £558,861 |
If they live to 95. "Tax after" is inheritance tax plus the family's income tax on pensions they inherit, at 20%.
Why ISA first can cost more
| Tax while alive | Tax in total | |
|---|---|---|
| ISAs and savings first | £70,517 | £193,613 |
| Tax-smart | £77,693 | £157,710 |
Spending the ISA first pays less tax while alive. But it leaves more in the pension, which is taxed again after death.
Before 75 and after 75
| If death is | Pension left to family |
|---|---|
| Before 75 | Inheritance tax only (from April 2027) |
| 75 or over | Inheritance tax, then income tax on what they draw, at their own rate |
| Left to a husband, wife or civil partner | No inheritance tax |
Try your own figures
Put your own pots into the calculator. The comparison is in the results, under "Which pot to spend first".
Questions people ask
Is it better to spend my ISA or my pension first?
It depends on your tax rate now, your family's tax rate, and whether you live past 75. From April 2027 pensions left at death count for inheritance tax, so spending the ISA first no longer always pays the least tax. The calculator shows five orders side by side on your own figures.
Do pensions count for inheritance tax?
Yes, for deaths on or after 6 April 2027. Pensions left to a husband, wife or civil partner remain free of inheritance tax.
Does my family pay income tax on a pension they inherit?
If death is at 75 or over, yes: they pay income tax at their own rate on what they draw. Before 75, inherited pensions are usually free of income tax.
Sources
Rates and rules were checked against these on 9 October 2026. Worked-example figures come from the calculator, using 2026/27 tax rules.