Tax on income you receive from a pension is calculated in the same way as earnings from employment. There is an annual personal allowance, which means that you can have an annual pension income of up to £12,570 (2023/24 tax year) that is not taxed. Income above this is subject to tax at rates of 20%, 40% or 45% depending on your overall total income. Learn more about income tax rates.
You pay tax if your total annual income adds up to more than your personal allowance of £12,570 (2023/24 tax year). Find out about your personal allowance and income tax rates.
Your total income could include:
- The state pension you get (either the basic state pension or the new state pension)
- Additional state pension
- A private pension (workplace or personal)
- Earnings from employment or self-employment
- Any taxable state benefits you get
- Any other income including that received from investments, property or savings.
Depending on the level of your total income, including any taxable lump sum you take from a pension, you may have to pay income tax at a higher rate on the income you receive. You may also owe extra tax, or be due a refund of tax, at the end of the tax year.
Pensioners do not receive a higher personal allowance for their income than other age groups. The amount you can receive tax-free before you start paying income tax on your pension, also known as a tax free personal allowance, is £12,570 for 2023/24. You will pay basic rate tax (20%) on your total income between £12,570 and £50,270. This means you can earn up to £50,270 before you start paying higher rate tax.
If you are married or in a registered civil partnership and you and/ or your spouse or civil partner were born before 6 April 1935, you can also claim a married couple’s allowance (MCA).
If you have any further questions around how tax could affect your retirement, you can find additional support on the Money Helper site.
What other income might I pay tax on in retirement?
What income might I not have to pay tax on in retirement?
What is a tax refund? Am I eligible for one on my pension income?
Do I pay tax on my pension contributions?
Is my state pension taxable?
Pension Wise from MoneyHelper
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