
Over the past year, UK pensioners have been left confused and anxious by letters from HM Revenue and Customs (HMRC), demanding unexpected tax payments on their state pensions.
If you’ve received such a letter, you’re not alone. This in-depth guide demystifies how UK pensions are taxed, what HMRC letters mean, and what you can do if you’re affected.
HMRC (HM Revenue and Customs) manages UK tax and national insurance collections, and issues tax codes and letters related to pension taxation.
These documents are binding and may affect your tax obligations.
As of 2025:
HMRC uses tax codes on private pensions to collect tax on the untaxed state pension.
Issues arise when:
Letter Type | Purpose |
---|---|
P2 Notice | Lists tax code and income sources |
P800 | Recalculates tax paid and owed/refunded |
PA302 | Formal tax demand (Simple Assessment) |
Coding Adjustments | Notifies changes in tax code due to income |
Example:
If your provider doesn’t apply the correct code, tax can go unpaid.
Tax Code | Meaning |
---|---|
1257L | Standard code for full allowance |
BR | Basic rate (20%) applied to all income |
0T | No allowance – all income taxed |
K1000 | £10,000 untaxed income – tax must be collected elsewhere |
Income Band | Tax Rate |
---|---|
£0 – £12,570 | 0% (Personal Allowance) |
£12,571 – £50,270 | 20% (Basic Rate) |
£50,271 – £125,140 | 40% (Higher Rate) |
State pension is added to other income, taxed accordingly.
Private pensions:
State pensions:
Common misinterpretations:
Case 1: Simple Assessment Shock
A 72-year-old with two annuities and a state pension received a £2,300 tax demand covering 3 years.
Case 2: Cumulative Coding Errors
A couple with 3 pensions had incorrect codes. HMRC issued multiple P800 letters asking for back taxes.
Responsibilities:
But…
You may want to register if:
Pensioner advocates and MPs are urging:
Understanding how state pension tax works is vital. Stay informed, double-check your figures, and don’t ignore HMRC letters.
Yes, if your total income is over £12,570.
Because the state pension is paid gross, and tax is collected through private pension codes.
It’s a formal tax bill from HMRC for people not in Self Assessment.
Yes. Contact them directly and request a review.
Written by OneShekel.com — helping you decode money, pensions, and tax confusion in the UK.
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