If your annual gross income exceeds your Personal Allowance, you are required to pay taxes. Find out about your Personal Allowance and Income Tax rates.
If you take a significant payout from a private pension, you might be subject to higher income tax rates. At the end of the tax year, you can also owe additional taxes.
The tax-free allowance for pensioners in the UK is the same as for anyone else in the UK. This means that you can earn or receive up to £12,570 in the 2024/25 tax year (6 April to 5 April) and not pay any tax. This is called your Personal Allowance. If you earn or receive less than this, you’re a non-taxpayer.
However, there are some additional tax-free allowances that may apply to pensioners. These include:
- The State Pension is tax-free, regardless of how much you receive.
- The new State Pension is also tax-free, but you may have to pay tax on any additional State Pension you receive.
- Private pensions can be taken as a lump sum, and you can usually take up to 25% of the amount built up in any pension as a tax-free lump sum. The most you can take is £268,275.
- If you hold a protected allowance, this may increase the amount of tax-free lump sums you can take from your pensions.
It’s important to note that you may still have to pay tax on your pension income even if it’s below the Personal Allowance. This is because your pension income will be added to any other income you have, such as earnings from employment or self-employment, taxable benefits, and income from investments, property, or savings.
If you’re unsure about whether you’ll have to pay tax on your pension income, you should speak to a financial advisor. They will be able to advise you on your individual circumstances and help you to plan your retirement income.
Additional Information
Here are some additional things to keep in mind about tax and pensions:
- You may have to pay Income Tax at a higher rate if you take a large amount from your pension. This is because the amount you take will be added to your other income for the year, and you may end up in a higher tax bracket.
- You may also owe extra tax at the end of the tax year. This is because your pension provider may not have taken enough tax off your pension income during the year.
- If you’re living abroad, you may have to pay tax on your UK pension income. The rules for this vary depending on the country you’re living in.
- There are some tax breaks available for people who are saving for their retirement. These include tax relief on pension contributions and the Lifetime Allowance.
The tax-free allowance for pensioners in the UK is the same as for anyone else in the UK. However, there are some additional tax-free allowances that may apply to pensioners. It’s important to note that you may still have to pay tax on your pension income even if it’s below the Personal Allowance. If you’re unsure about whether you’ll have to pay tax on your pension income, you should speak to a financial advisor.
If you take some or all of your pension as a lump sum
Any portion of the lump sum over this amount will be subject to income tax payable by you.
- your lump sum allowance
- your lump sum and death benefit allowance
Tax if someone inherits your pension
If someone inherits your private or state pension, additional regulations will apply.
What is the new personal allowance? 2022 – 2023 – UK – Tax Free Allowances
FAQ
How much pension is tax-free UK?
Does everyone get a tax-free allowance UK?
Do you pay tax on State Pension in UK?
What is pension lifetime allowance UK?
What is the tax-free allowance for pensioners?
Now that you know what is the tax-free allowance for pensioners, and that it amounts to £12,570 for 2021/22, you can minimise or avoid your tax charges by withdrawing only as much as you need or below this amount.
What is the pensions annual allowance?
The government puts a limit on the amount of pension contributions on which you can earn tax relief. This is called the pensions annual allowance. It has been set at £60,000 for the tax year 2023-24 (up from £40,000 in 2022-23). Any pension payments you make over the £60,000 limit will be subject to income tax at the highest rate you pay.
Is my pension tax-free?
The good news is that some of your pension is tax-free. If you have a defined contribution pension , you can usually take up to 25% from your pension free of income tax (the remaining 75% is taxed as earnings).
What is the ‘annual allowance’ for pensions tax relief?
The government spends billions of pounds every year on pensions tax relief and, therefore, places a cap on the amount you can save every year, upon which you can earn relief. This cap is known as the ‘annual allowance’, which is rising to £60,000 in the 2023-24 tax year, or 100% of your income if you earn less than £60,000.