Introduction [Is the state pension taxed?]

The UK State Pension is the foundation of retirement income for millions of people. But one question keeps causing confusion.

👉 Is the State Pension taxed?

The short answer is: Yes, the State Pension counts as taxable income.

But there’s a catch. Unlike wages or private pensions, the State Pension is usually paid without tax being deducted at source. This means whether you actually pay tax depends on your total annual income and your tax-free Personal Allowance.

For many pensioners, this leads to surprises, HMRC letters, and unexpected tax bills.

In this in-depth guide, we’ll explain:

• Whether and when you pay tax on your State Pension

• How much tax you might owe in 2025/26

• Common scenarios (State Pension only, plus private pension, plus part-time work)

• Why HMRC sends so many tax letters to pensioners

• How to manage your tax efficiently in retirement

Is the State Pension Taxed in the UK?

Yes. The State Pension is part of your taxable income.

However, there are two important points

1. It is not taxed at source – unlike a salary (PAYE), no tax is deducted before you receive it.

2. Whether you pay depends on your total income – if your combined income (State Pension + other pensions + savings + work) exceeds your Personal Allowance, you’ll owe tax.

State pension tax, For the 2025/26 tax year

3. The Personal Allowance is £12,570 (unchanged since 2021).

4. Income above this is taxed at 20% (basic rate), 40% (higher rate), or 45% (additional rate).

The 2025/26 Personal Allowance and the State Pension

The full new State Pension in 2025/26 is approximately £11,501.80 per year (£221.20 per week).

This is just below the £12,570 Personal Allowance.

This means:

• If you only receive the State Pension, you will not usually pay tax.

• But if you have any other income (e.g., private pension, part-time job, rental income, savings interest), you may owe tax.

Examples: How Pension Tax Works in Practice

To make this clearer, here are some common pensioner income scenarios:

Example 1: State Pension Only

• Income; £11,501.80

• Allowance; £12,570

• Taxable Income; £0 ✅ No tax due.

Example 2: State Pension + Private Pension (£8,000)

• State Pension; £11,501.80

• Private Pension; £8,000

• Total Income; £19,501.80

• Allowance; £12,570

• Taxable Income; £6,931.80

• Tax Due (20%); £1,386.36

💡 In this case, HMRC usually adjusts the tax code on the private pension to collect the tax.

Example 3: State Pension + Part-Time Job (£6,000)

• State Pension; £11,501.80

• Earnings; £6,000

• Total Income; £17,501.80

• Allowance; £12,570

• Taxable Income; £4,931.80

• Tax Due (20%); £986.36

✅ Here, the employer may apply the tax code to the wages to cover the tax due on both the job and pension.

Example 4: Higher-Income Pensioner (£40,000 total)

• State Pension; £11,501.80

• Other Income; £28,498.20

• Total Income; £40,000

• Allowance; £12,570

• Taxable Income; £27,430

• Tax Due:

• £37,700 @ 20% → £7,540

• The rest @ 40% if income rises further

Why Do Pensioners Receive HMRC Tax Letters?

Many retirees are surprised to get HMRC tax demands after starting their pension.

This happens because:

1. The State Pension is paid gross (without tax deducted).

2. HMRC must collect the tax by adjusting your tax code on other income sources (private pension, wages).

3. If this doesn’t cover the full liability, HMRC may issue a self-assessment bill.

4. In 2024, thousands of pensioners received letters about underpaid tax on State Pensions — a problem expected to continue in 2025/26.

Do You Need to File a Tax Return as a Pensioner?

Not always. Most pensioners don’t file tax returns if

• HMRC can collect the right tax through PAYE on private pensions or wages.

But you must file if:

• You have significant untaxed income (rental, self-employment, overseas pensions).

• Your total income is above £100,000.

• HMRC specifically requests it.

Common Myths About State Pension and Tax

1. “The State Pension is tax-free.” ❌ False. It is taxable, but not taxed at source.

2. “All pensioners get a higher Personal Allowance.” ❌ False. Since April 2016, pensioners get the same allowance as everyone else.

3. “National Insurance is still due after pension age.” ✅ True for self-employed profits, but not on wages after State Pension age.

4. “Deferring the State Pension avoids tax.” ❌ Not exactly. It may help if you’re still working, but when you eventually claim, the larger pension is still taxable.

Tips to Manage Pension Tax

1. Check your tax code regularly on HMRC’s website.

2. Tell HMRC about all your income sources.

3. Budget for tax bills if you have multiple pensions.

4. Consider timing – if still working, deferring your State Pension could help reduce your tax burden.

5. Use allowances – like the savings allowance, dividend allowance, and Marriage Allowance if eligible.

Frequently Asked Questions

1. Do pensioners pay National Insurance? No, once you reach State Pension age, you no longer pay National Insurance.

2. Is the lump sum from deferring my pension taxable? Yes, it is taxable in the year you receive it.

3. What if I live abroad? You may still pay UK tax on your State Pension, depending on tax treaties.

4. Can HMRC take tax directly from my State Pension? No, they cannot. They adjust tax codes on other income.

5. What if I only have the State Pension? If it’s below the Personal Allowance, you won’t pay any tax.

Conclusion on state pension tax

So — is the State Pension taxed in the UK?

✅ Yes, it is taxable income. ❌ No, tax is not deducted automatically. 💡 Whether you pay tax depends on your total income and the £12,570 Personal Allowance.

For many pensioners, this creates confusion, especially when HMRC letters arrive. The key is to:

• Understand how the system works

• Keep track of your income

• Check your tax code regularly

This way, you can avoid nasty surprises and manage your retirement income with confidence.