Paying Tax in Retirement

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Paying Tax in Retirement

Upon reaching State Pension Age, there is no further need to make National Insurance contributions. However, being retirement means you still have to pay income tax, and this includes pensions and state pensions if your total exceeds the tax-free allowances.

Should I be paying tax?

If you should be paying tax in retirement, your pension office may have already contacted you.

You should fill in a Pension Coding form P161. It is possible to download this form online and contact your tax office.

To work out if you need to pay tax in retirement you should:

• Add up all taxable income
• Work out tax-free allowances
• Deduct tax-free allowances from taxable income

If your taxable income is greater than your tax-free allowances you will have to pay tax. 

However, if your tax-free allowances are the same as or more than your taxable income, and you do not have to pay tax.

Taxable income examples

• Pension income (including State Pension)
• Employment/self-employment income if you keep working
• Almost all bank and building society interest
• Dividends
• Income from property after expenses excluding the first £4,250 if you rent out a room in your house
• Income from overseas (overseas pensions have a 10 per cent deduction so you are only taxed on 90 per cent of the total amount)
• Some benefits, including Carer's Allowance and, in some cases, Incapacity Benefit

If you are married or in a civil partnership and have income from savings, investments or property held in joint names you're usually treated as getting half the income each. So you only have to pay tax on your half.

If you're not married or in a civil partnership you count only your share of joint income.

Non-taxable income includes

• Pension Credit
• Working Tax Credit and Child Tax Credit
• Income or interest from an Individual Savings Account (ISA), a Personal Equity Plan (PEP), or a Tax Exempt Special Savings Account (TESSA)
• Interest from National Savings Certificates
• Interest and bonuses from a Save As You Earn (SAYE) scheme
• Premium Bond and National Lottery winnings
• Certain benefits, including Cold Weather Payments, Attendance Allowance, Income Support and Disability Living Allowance
• Lump sum pension payments

Tax-free allowances

• Personal Allowance
• Blind Person's Allowance