Tax when you get a pension

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1. What鈥檚 taxed

You pay tax if your total annual income adds up to more than your Personal Allowance. Find out about your Personal Allowance and Income Tax rates.

Your total income could include:

This guide is also available in Welsh (Cymraeg).

Check if you have to pay tax on your pension

Before you can check, you鈥檒l need to know:

  • if you have a State Pension or a private pension
  • how much State Pension and private pension income you will get this tax year (6 April to 5 April)
  • the amount of any other taxable income you鈥檒l get this tax year (for example, from employment or state benefits)

You cannot use this tool if you get:

  • any foreign income
  • Marriage Allowance
  • Blind Person鈥檚 Allowance

Use this online tool to .

If you take some or all of your pension as a lump sum

You鈥檒l pay Income Tax on any part of the lump sum that goes above either:

  • your lump sum allowance聽
  • your lump sum and death benefit allowance

Find out what your lump sum allowances are.

You may have to pay Income Tax at a higher rate if you take a large amount from a private pension. You may also owe extra tax at the end of the tax year.

Tax if someone inherits your pension

Different rules apply if someone inherits your State pension or your private pension.

2. What's tax-free

You will not usually pay any tax if your total annual income adds up to less than your Personal Allowance - this is usually 拢12,570.

Lump sums from your pension

You can usually take up to 25% of the amount built up in any pension as a tax-free lump sum. The most you can take is 拢268,275.

If you hold a protected allowance, this may increase the amount of tax-free lump sums you can take from your pensions.

The tax-free lump sum does not affect your Personal Allowance.

Tax is taken off the remaining amount before you get it.

Example

Your whole pension is worth 拢60,000. You take 拢15,000 tax-free. Your pension provider will then take off the tax from the remaining 拢45,000.

When you can take your pension depends on your pension scheme鈥檚 rules. It鈥檚 usually 55 at the earliest.

You might have to pay Income Tax at a higher rate if you take a large amount from your pension. You could also owe extra tax at the end of the tax year.

How you can take your pension

A pension worth up to 拢10,000

You can usually take any pension worth up to 拢10,000 in one go. This is called a 鈥榮mall pot鈥� lump sum. If you take this option, 25% is tax-free.

You can usually get:

  • up to 3 small pot lump sums from different personal pensions
  • unlimited small pot lump sums from different workplace pensions

A pension worth up to 拢30,000 that includes a defined benefit pension

If you have 拢30,000 or less in all of your private pensions, you can usually take everything you have in your defined benefit pension or defined contribution pension as a 鈥榯rivial commutation鈥� lump sum. If you take this option, 25% is tax-free.

If this lump sum is paid from more than one pension, you must:

  • have your savings in each scheme valued by the provider on the same day, no more than 3 months before you get the first payment
  • get all payments within 12 months of the first payment

If you take payments from a pension before taking the rest as a lump sum, you pay tax on the whole lump sum.

Cash from a defined contribution pension

Check with your provider about how you can take money from a defined contribution pension. You can take:

  • all the money built up in your pension as cash
  • smaller cash sums from your pension

You can usually take up to 25% of the amount built up in any pension as a tax-free lump sum. The most you can take is 拢268,275.

If you hold a protected allowance, this may increase the amount of tax-free lump sums you can take from your pensions.

You may have to pay a tax charge on money you put into your pension after you withdraw cash.

If your life expectancy is less than a year

You may be able to take all the money in your pension as a tax-free lump sum, if all of the following apply:

You鈥檒l pay Income Tax on some or all of the lump sum if:

Check with your pension provider. Some pension funds will keep at least 50% of your pension for your spouse or civil partner.

3. How your tax is paid

The way tax is paid depends on the kind of pension you get, and whether you have any other income.

If you get the State Pension and a private pension

Your private pension provider will usually take off any tax you owe before they pay you. This includes any tax you owe on your State Pension.

If you get payments from more than one provider (for example, from a workplace pension and a personal pension), HM Revenue and Customs (HMRC) will ask one of your providers to take the tax off your State Pension.

At the end of the tax year you鈥檒l get a P60 from your pension provider showing how much tax you鈥檝e paid.

If the State Pension is your only income聽

If you go over your Personal Allowance and you have tax to pay, HMRC will send you a Simple Assessment tax bill. This will tell you how much you owe and how to pay it.

After your first year of getting the State Pension, you鈥檒l pay tax based on 52 weeks of payments each year.

If your income is below your Personal Allowance, you usually will not need to pay tax.

If you鈥檙e working and getting a pension

Your employer will usually take any tax you owe off your earnings, including any tax you owe on your pension.

If you鈥檙e self-employed you must fill in a Self Assessment tax return at the end of the tax year. You must declare your overall income, including the State Pension and money from private pensions, for example your workplace pension.

If you have other income

You must let HMRC know about any income you receive that is not from an employer or a pension. You might have to fill in a Self Assessment tax return to report this.

If you owe any tax on investment income, HMRC will send you a calculation telling you how much you owe and how to pay it.

Tax codes

If your income only comes from one source you鈥檒l usually have one tax code.

You can have several tax codes if you have income from more than one source.

You can get your tax code corrected if you think it鈥檚 wrong.

4. Tax when you live abroad

You may be taxed on your pension by the country where you鈥檙e resident and by the UK.

You鈥檒l pay UK tax on your pension if either:

The amount you pay depends on your income. You need to tell HMRC if you move abroad.

You may not have to pay twice if the country you鈥檙e resident in has a 鈥榙ouble-taxation agreement鈥� with the UK. Your country鈥檚 tax treaty will tell you where to pay tax.

5. Higher tax on unauthorised payments

You鈥檒l pay up to 55% tax on payments from your pension provider if they make an 鈥榰nauthorised payment鈥�. This is a payment made outside of the government鈥檚 tax rules and usually includes:

Some companies advertise personal loans or cash advances if you take your pension early. These payments are unauthorised and you have to pay tax on them.