Tax on your State Pension

The basic State Pension counts as taxable income but is paid to you without tax taken off. How you pay the tax due on your State Pension will depend on a number of factors. If your income is low there may be no tax to pay - and you may be able to get other benefits.

Should you be paying tax on your State Pension?

The basic State Pension is based on the National Insurance contributions you've paid, or have been credited with, during your working life.

When you reach State Pension age you no longer pay National Insurance contributions, but you don't automatically stop paying Income Tax. If your taxable income - including your State Pension - is more than your tax-free personal allowance you're still a taxpayer and must contact HM Revenue & Customs (HMRC) if you're not already paying tax.

Remember, your personal allowance may change with age. If your tax-free allowances are the same as or more than your taxable income, no action is necessary.

If you think that you shouldn't be paying tax but are, you may be able to claim a refund.

It’s important that you fill in and give details of your income on form P161 Pension Coding. HMRC should send you this just before you reach State Pension age. HMRC can then make sure you pay the right tax from State Pension age. If you don't receive one you should tell HMRC by phone or letter.

How you pay tax on your State Pension

If you already get another pension

If you get another pension (like a retirement annuity or a personal or company pension) and you pay tax on this, you'll usually pay tax on your State Pension at the same time. This is done through the PAYE (Pay As You Earn) scheme. HMRC sends a tax code to your pension payer to show them how much tax to take off, including any due on your State Pension. This might make the tax on your company or personal pension seem high but it's because it includes the tax due on your State Pension.

Tax if you don't get another pension

If you don’t normally complete a tax return, but think you need to, you can do so in one of two ways:

if you're working, you'll pay tax through your employer's PAYE scheme depending on the amount you earn
if you're not working, you'll need to pay tax through Self Assessment by completing a tax return

If you don't normally complete a tax return, you'll need to use form SA1 to register for Self Assessment before you can get a tax return.

Checking that your tax code is right

If your pension is taxed through your employer or your pension payer you'll receive a PAYE Coding Notice (form P2) from HMRC at least once a year telling you your tax code. It's important to check this to make sure it shows the right amount of tax on your State Pension. Follow the link below to find out more.