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Pension Tax

Your pension counts as taxable income, which means that if you receive more than a certain amount per year you will be due to pay income tax.

On this page you will find information about:

Do I have to pay tax on my pension?

Your pension is part of your total taxable income calculation. You pay tax on any income that is more thanyour Personal Allowance amount. If you are required to pay tax on your pension, it will usually be taken at the source through the PAYE scheme. Your pension provider will pay a percentage of the amount directly to HMRC. If tax is also due on your state pension, this will be removed from your other pension or annuity payments. In this case you will still receive the full state pension, but you will pay more tax on your other pension(s).

If you think that your pension payments will take you over your personal allowance, you should register to complete a Self-Assessment tax return. It is important that you do this, because if you do not pay enough tax you may face a tax bill, possibly including penalties.

If you think you have paid too much tax on your pension you can apply for a Tax refund.

Are lump sum pension payments tax free?

In April 2015-16 tax year, the government introduced the option of cashing in lump sums from your overall pension pot. Defined contribution pensions now allow you to withdraw lump sums from the age of 55. Taking out 25% of your pension pot this way is tax free. But taking more than that will be subject to income tax. Once you have taken out this quarter of your pension total, you will not be entitled to any other tax free withdrawals.

You can also choose to take out irregular smaller sums and get 25% of each amount tax free, as long as the rest of the pension remains invested.

The tax free lump sum is not counted within your Personal Allowance. Small pension pots, up to £10,000, can usually be cashed in during one transaction.

Different types of pension and their providers have different rules about taking out lump sums. There tax implications are also influenced by your personal situation, such as any other income streams. It is wise to consult a tax or financial expert before making any irreversible decisions about your financial future.

Do I have to pay tax on my state pension?

When you reach state pension age, you no longer need to pay National Insurance, however, you still need to pay Income Tax.

Every year, you receive a tax-free personal allowance, which may vary according to your age. If your total income, including your state pension, exceeds this personal allowance, then you need to pay Income Tax on the excess. The tax on this is usually paid through any private pension or other income paid through the PAYE system. Otherwise you need to pay this tax on your pension by using the self assessment system.

For further Tax information, please follow the links below:

  • Income Tax includes:
    What is income tax?
    How is Income Tax calculated?
    How much income tax do I need to pay?
    Income Tax Allowances
    Income Tax Rates and Taxable Bands
    How do I pay income tax?

  • Tax Codes includes:
    Where do I find my Tax Code?
    New Tax Codes
    What does my tax code mean?
    Different Tax Codes
    More than one job
    Emergency Tax Codes

  • Emergency Tax Codes includes:
    What is an Emergency Tax Code?
    What does an emergency Tax Code look like?
    Why do I have a BR/ Emergency Tax Code?
    Can I get a Tax Refund if I have paid Emergency Tax?

  • Construction Industry Scheme includes:
    CIS For Subcontractors
    CIS For Contractors (Employers)

  • VAT (Value Added Tax) includes:
    What is VAT?
    When do I pay VAT?
    How much VAT do I need to pay?
    Do I need to register for VAT?
    How do I pay VAT?
    Can I claim VAT back?

  • Self Assessment includes:
    What is Self Assessment?
    Do I need to complete a Self Assessment tax return?
    How do I get a Self Assessment tax return form?
    How do I register for Self Assessment?
    Can I register for Self Assessment on behalf of a company or trust?
    What is a Unique Tax Reference number (UTR)?
    How do I get a Unique Tax Reference (UTR) number?
    How do I complete my Self Assessment tax return online?
    Can I complete my Self Assessment tax return on paper?
    Record keeping
    Self Assessment Tax return deadlines
    What if I submit my tax return late?
    What if I submit my tax return incorrectly?
    How is my tax calculated?
    Do I need to check my tax calculation?

  • National Insurance includes:
    What is National Insurance?
    What are the different types of National Insurance?
    Who pays National Insurance?
    What is National Insurance used for?
    Do your National Insurance payments affect your Pension and Benefits?
    How much National Insurance should I pay?

  • Corporation Tax includes:
    Who needs to pay Corporation Tax?
    How much Corporation Tax do I need to pay?
    How do I pay Corporation Tax?

  • Inheritance Tax includes:
    What is Inheritance Tax?

  • Capital Gains Tax includes:
    What is Capital Gains Tax?

More Info

Tax Refunds

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