In this section:
- Pensions, state benefits and your tax code
- State Pension and your tax code - worked examples
State Pension and your tax code - worked examples
These examples show how your tax code is adjusted to take account of the tax you owe on your State Pension. To find out more about how your tax code is worked out if you get a pension and/or state benefits including the State Pension read the related guide 'Pensions, state benefits and your tax code' - you'll find the link under 'Further information' at the end of the page.
On this page:
Examples of State Pension collected via a company pension provider
Example - tax year 2009-10
You're 67, have retired and get a company pension of £6,000 and a State Pension of £4,953. You're entitled to the full age-related Personal Allowance for your age-group because your total taxable income is less than £22,900 - the income limit. Your tax code is adjusted to collect the tax due on your State Pension out of your company pension like this:
- your age-related Personal Allowance - the amount of income you can receive tax-free in the tax year - is £9,490
- we subtract your State Pension of £4,953 (this is taxable income that you are in fact receiving without tax taken off - to take account of this it's taken from your tax-free Personal Allowance)
- that leaves you with a balance of Personal Allowance of £4,537 (this is the remaining amount of income you can receive without paying tax)
- your tax code becomes 453P - P indicates entitlement to the full age-related Personal Allowance for age 65-74 and 453 is the amount of allowance with the last number knocked off
- we subtract the balance of your Personal Allowance (£4,537) from your company pension (£6,000)
- that means that the amount of company pension you pay tax on is £1,463
Example - tax year 2008-09
You're 67, have retired and get a company pension of £6,000 and a State Pension of £4,716. You're entitled to the full age-related Personal Allowance for your age-group because your total taxable income is less than £21,800 - the income limit. Your tax code is adjusted to collect the tax due on your State Pension out of your company pension like this:
- your age-related Personal Allowance - the amount of income you can receive tax-free in the tax year - is £9,030
- we subtract your State Pension of £4,716 (this is taxable income that you are in fact receiving without tax taken off - to take account of this it's taken from your tax-free Personal Allowance)
- that leaves you with a balance of Personal Allowance of £4,314 (this is the remaining amount of income you can receive without paying tax)
- your tax code becomes 431P - P indicates entitlement to the full age-related Personal Allowance for age 65-74 and 431 is the amount of allowance with the last number knocked off
- we subtract the balance of your Personal Allowance (£4,314) from your company pension (£6,000)
- that means that the amount of company pension you pay tax on is £1,686
