In this section:
Tax on retirement annuities
If your pension comes from a pension plan set up before July 1988 it's called a 'retirement annuity'. Retirement annuities are paid out of Retirement Annuity Contracts (RACs). After July 1988 retirement annuities were replaced with personal pensions, but those started before that date can carry on until the person retires. The way you pay tax on a retirement annuity changed from April 2007.
On this page:
- How your retirement annuity was taxed before April 2007
- How your retirement annuity is taxed now
- If you think you have overpaid tax on a Retirement Annuity Contract
- Deadline for claiming a tax refund
- Purchased Life Annuity - completing a form R89 to receive an annuity without tax taken off
- More useful links
How your retirement annuity was taxed before April 2007
Before 5 April 2007 all retirement annuities were paid with tax taken off at the basic rate unless you'd completed a form R89 'Application to receive an annuity without tax taken off' because you didn't have enough income to need to pay tax.
This system now only applies to Purchased Life Annuities, not RACs. Purchased Life Annuities pay a guaranteed income for life and can be bought with money from any source, not just pension income.
More about Purchased Life Annuities
How your retirement annuity is taxed now
On 6 April 2007 the system changed. Now all retirement annuities - except for Purchased Life Annuities - are taxed through PAYE (Pay As You Earn), just like personal or company pensions.
How PAYE works if you receive a retirement annuity
Your Tax Office sends your annuity provider a tax code which tells them how much tax to deduct before they pay you. The tax code is based on information we have about your age and overall income - and it might ask for deduction of tax due on your State Pension if you're not already paying tax on this through other means.
You'll receive a form P2 PAYE Coding Notice telling you what your tax code is. It's important to check it - if you think any of the information is wrong you can ask us to re-check it and get a refund if you've overpaid tax. Read our related guides under 'More useful links' below to find out more.
Form P60
At the end of the tax year you'll get a P60 End of Year Certificate. This shows the amount of your annuity and the tax that's been taken off. A tax year runs from 6 April one year to 5 April the next year. Keep the P60 in a safe place in case you need to fill in a tax return or check how much tax you've paid.
If you think you have overpaid tax on a Retirement Annuity Contract
If you're concerned that you have paid or are paying the wrong amount of tax on a Retirement Annuity Contract, you can call our Retirement Annuity Contracts Helpline for advice on Tel 0845 366 7868, open from 8.30 am to 5.00 pm, Monday to Friday.
When you call us please have the following information to hand:
- your National Insurance number or tax reference
- details of your annuity
- details of any other income you get, such as a State Pension or investment income
If you'd rather write to us the address is:
HM Revenue & Customs (HMRC) RACS
Leicester and Northants LPO
Saxon House
1 Causeway Lane
Leicester
LE1 4AE
After you get in touch with us we may ask you to fill in a form P161 'Pension Coding'. This form helps us to work out how to tax your income - including the income you get from your annuities.
We also offer Pensioners Assistance. This is a one-to-one consultation with you at your Tax Office - or we can arrange a home visit if necessary. If you're interested in using this service please call our Retirement Annuity Contracts Helpline on Tel 0845 366 7868.
Why it's important to fill in your Pension Coding form
Download form P161 'Pension Coding' (PDF 133K)
Deadline for claiming a tax refund
If you've been paying too much tax you can claim a tax repayment for up to six tax years as long as you make the claim by 31 January towards the end of the sixth tax year.
For example, if you make a claim before 31 January 2009, you will be entitled to be repaid back to April 2003. If you make a claim on 1 February 2009, you will miss out on any repayment due to you up to April 2003 and your claim will only go back to April 2004.
How your tax rebate will be paid
For claims for tax overpaid after April 2007 you'll get your repayment through PAYE.
For claims for tax paid before April 2007 we will send you a refund. Note that you may need to send us your annual statements so we can calculate the amount that's due to you.
Purchased Life Annuity - completing a form R89 to receive an annuity without tax taken off
If you're getting a Purchased Life Annuity it's probably being paid to you after basic rate tax has been taken off. If you don't think you should be paying tax on it - or if you think you should be paying less tax - because you are on a low income you'll need to complete a form R89.
You can get form R89 from the provider that pays your annuity or by downloading one below. When you've filled it in, send it back to your annuity provider.
Do you have to pay tax in retirement?
More useful links
Pensions, state benefits and your tax code
Find out how to claim back tax if you overpaid through your pension
Read about tax on company, personal or foreign pensions
