Do you have to pay tax in retirement?

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 allowances you'll still have to pay tax.

On this page:

Working out if you should be paying tax

To work out if you are a taxpayer follow these 3 steps (these are covered in more detail below):

  • add up all your taxable income
  • work out your tax-free allowances
  • take your tax-free allowances away from your taxable income

If your taxable income is more than your tax-free allowances, you'll have to pay tax and must contact 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'll be able to claim a refund.

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Step 1 - add up your taxable income

Some income is taxable and some is non-taxable. You compare only your taxable income with your tax-free allowances in a tax year (6 April to 5 April) to see if you're a taxpayer.

We've included the most common types of taxable and non-taxable income below. However, please also refer to the full list of taxable and non-taxable income by following the link at the end of this section.

Taxable income

Your taxable income includes:

  • all pension income (including State Pension)
  • employment/self-employment income if you keep working
  • almost all bank and building society interest (the 'gross' amount before tax is taken off)
  • dividends (income from shares)
  • income from property after expenses - but not the first £4,250 if you rent out a furnished room in your house (£2,125 if split jointly between you and your partner)
  • income from abroad (overseas pensions have a 10% deduction so you're only taxed on 90% of the total amount)
  • some benefits, including Carer's Allowance, Employment and Support Allowance and Incapacity Benefit

If you're 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. This means you may only have to pay tax on your half of the joint income. If you're not married or you're not in a civil partnership count only your share of joint income.

Non-taxable 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)
  • 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 (but not lump sums from deferring a State Pension or foreign pensions)

A full list of taxable and non-taxable income at a glance

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Step 2 - add up your tax-free allowances

Your tax-free allowances are the amount of income you can get without paying tax. They include the Personal Allowance, Blind Person's Allowance, Married Couple's Allowance and Maintenance Payments Relief. More on these in the second link below.

Personal Allowance

From 6 April 2013, the amount of your Personal Allowance depends on your date of birth and your income in the tax year. The higher Personal Allowances for people born before 6 April 1948 will not be increased.

Personal Allowance rates 2014 to 15
Personal Allowance rates 2014 to 2015 Income limit (see note)
Born after 5 April 1948 £10,000 £100,000
Born between 6 April 1938 and 5 April 1948 £10,500 £27,000
Born before 6 April 1938 £10,660 £27,000

If you exceed the income limits shown in the table above your Personal Allowance will be reduced by £1 for every £2 above the limit. If you were born before 6 April 1948 your personal allowance is not reduced below £10,000, unless your income is above £100,000.

More about Personal Allowance

Income Tax allowances and reliefs

Blind Person's Allowance

If you're registered as blind with a local authority in England and Wales you can claim Blind Person's Allowance. To claim this in Scotland or Northern Ireland you must be unable to perform any work for which eyesight is essential. As with your Personal Allowance, this is an amount of income you can get without paying tax. For 2014 to 2015 the allowance is £2,230.

More about Blind Person's Allowance

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Step 3 - work out if you're a taxpayer

Take your tax-free allowances away from your taxable income. If there's anything left you are a taxpayer and must contact HMRC if you're not already paying tax. If there's nothing left you shouldn't be paying tax and may be due a refund.

Remember that you may qualify for other allowances such as Married Couple's Allowance and Maintenance Payments Relief that can reduce your tax bill. In some cases this may mean that you have nothing to pay at all. Follow the link below for ‘Introduction to tax allowances and reliefs’ to find out more.

If you already pay tax through PAYE, HMRC may be able to collect any extra tax you owe including that on your State Pension through PAYE if:

  • you're getting a personal (including a retirement annuity) or workplace pension
  • you work

Otherwise you'll be asked to confirm your income and may need to pay your tax through Self Assessment.

Introduction to tax allowances and reliefs

Income Tax rates and allowances

Do you need to complete a tax return?

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How to contact HMRC

If you want to contact HMRC follow the 'Contact HMRC' link below. If you're self-employed and want to contact HMRC, use the 'Find a Tax Office for the Self Employed' link below. When contacting HMRC you'll need your National Insurance number, if possible.

Contact HMRC

Find a Tax Office - for the Self Employed

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If you think you're paying too much tax

If you think you're paying too much tax or shouldn't be paying tax at all, follow the link below to find out how you can claim a refund.

Claiming back tax or National Insurance at State Pension age

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Getting help and advice

The organisations below can provide you with free, independent tax advice. Please note the list isn't exhaustive and the links are to external organisations which are not managed by HMRC.

Tax Help for Older People - for older people on low incomes

Taxaid - for people on low incomes

Citizens Advice Bureau

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More useful links

Tax on your State Pension

Tax if you take your State Pension later on

Tax when retiring abroad or back in the UK

Read more about income and tax on the age UK website (Opens new window)

More about tax for pensioners from the Low Incomes Tax Reform Group website (Opens new window)

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