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Money, tax and benefits
Tax on your State Pension
The basic State Pension is based on the National Insurance contributions (NICs) you've paid or have been credited with during your working life. It 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.
Should you be paying tax on your State Pension?
When you reach State Pension age you no longer pay NICs, 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 (which depends on your age) you're still a taxpayer and must contact HM Revenue & Customs (HMRC) if you're not already paying tax.
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 the form HMRC sends you just before State Pension age - form P161 'Pension Coding' - giving details of your income so that they can make sure you pay the right tax from State Pension age. If you don't receive one you should get in touch with your Tax Office.
How you pay tax on your State Pension
If you already get another pension
If you get another pension (eg 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 - your Tax Office 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, but think you need to in order to pay tax on your State Pension please contact HMRC.
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 your Tax Office 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 links below to find out more.
If you think you've paid too much tax on your State Pension
If you think you're paying too much tax through your pension or shouldn't be paying tax at all, there are steps you can take to claim a refund.
