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Do you know what tax you have to pay on your pension?

I have to pay tax on my pension?

The short answer is, yes you do have to pay tax on your pension because some pension money is classed as taxable income. So, if your income totals more than your tax free Personal Allowance amount, then you are liable to pay income tax whether it’s from a pension or not.

But it’s not all bad news, some pension payments are non-taxable, it depends on your own personal situation.

What pension payments are taxable?

When you are a pensioner, you could have income from a variety of sources. The income that is taxable includes:

  • Taxable benefits
  • Savings, investments or property income
  • Anything you earn form working, either employed or self employed
  • State pension
  • Personal or workplace private pension

Your total income is calculated, if it is less than your Personal Allowance amount, you won’t pay any income tax. If it is more than that, you pay the same income tax rates as every other taxpayer.

Note for Millionaires

If your pension payments come to more than £1m, then you pay a ‘tax charge’ that is deducted by your pension provider.

Tax-free Pension Lump Sums

Depending on your pension type and amount, you can receive a certain amount of your pension as a lump sum tax free. As a general rule, 25% of any pension pot built up over time can be accessed tax free. To find out the various different ways you can receive your pension pot, check out the information in our Pension Tax section.

How do I pay tax on my pension?

If you have a private pension as well as your state pension then HMRC will instruct your pension provider to deduct any tax you owe. You will get a P60 at the end of every tax year which records how much tax you have paid. If you only have a state pension, but owe tax, you need to fill in a self assessment tax return. If you remain in employment, your employer and pension provider will deduct tax. If you are self employed, or have other income streams, you must tell HMRC through the self assessment tax return system.

May 22nd, 2018|Pension tax|

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