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Part of Plan your retirement income: step by step

Tax when you get a pension

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1. Overview

You’ll usually pay tax on income from your pensions. This includes your State Pension.

The amount of tax you pay depends on the total income you receive during the tax year.

You pay tax if your total annual income adds up to more than your Personal Allowance - this is usually £12,570.

This guide is also available in Welsh (Cymraeg).

Types of pensions

There are different types of pensions that you may pay tax on, for example:

Tax if you inherit a pension

Different rules apply if you inherit a State pension or a private pension.

2. What's tax-free

You will not usually pay any tax if your total annual income adds up to less than your Personal Allowance - this is usually £12,570.

Lump sums from your pension

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.

The tax-free lump sum does not affect your Personal Allowance.

Tax is taken off the remaining amount before you get it.

Example

Your whole pension is worth £60,000. You take £15,000 as a tax-free lump sum. Your pension provider will then take off the tax from the remaining £45,000.

When you can take your pension depends on your pension scheme’s rules. It’s usually 55 at the earliest.

You might have to pay Income Tax at a higher rate if you take a large amount from your pension. You could also owe extra tax at the end of the tax year.

How you can take your pension

A pension worth up to £10,000

You can usually take any pension worth up to £10,000 in one go. This is called a ‘small pot’ lump sum.

If you take a small pot lump sum from a pension that you’ve not already accessed, 25% of it is tax-free.

You can usually get:

  • up to 3 small pot lump sums worth up to £10,000 each from different personal pensions
  • unlimited small pot lump sums from different workplace pensions

If your private pensions are worth £30,000 or less

If all your private pensions are worth £30,000 or less, you may be able to take the whole amount from certain types of pensions as a lump sum. This is called a ‘trivial commutation’ lump sum.

You can usually do this if the pension is a defined benefit pension.

If you take the lump sum from a pension that you’ve not already accessed, 25% of it is tax-free.

If you’ve already accessed the pension, the whole lump sum is taxable.

If this lump sum is paid from more than one pension, you must:

  • get each pension valued on the same day, no more than 3 months before you get the first payment
  • take all payments within 12 months of the first payment

Cash from a defined contribution pension

Check with your provider about how you can take money from a defined contribution pension. You can take:

  • all the money built up in your pension as cash
  • smaller cash sums from your pension

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.

You may have to pay a tax charge on money you put into your pension after you withdraw cash.

If your life expectancy is less than a year

You may be able to take all the money in your pensions as tax-free lump sums, if all of the following apply:

You’ll pay Income Tax on some or all of the lump sum if:

Check with your pension provider. Some pension funds will keep at least 50% of your pension for your spouse or civil partner.

3. What’s taxed

You’ll pay tax on your pensions if your total taxable income is more than your Personal Allowance - this is usually £12,570.

Your total income could include:

Check if you have to pay tax on your pension

Before you can check, you’ll need to know for this tax year:

  • what types of pensions you’ll get
  • how much State Pension you’ll get - you can use your annual, weekly or 4-weekly amount
  • how much private pension you’ll get
  • the amount of any other taxable income you’ll get
  • if you’ll receive or transfer Marriage Allowance

Use this online tool to calculate how much tax you may need to pay on your pension.

If you take some or all of your pension as a lump sum

You’ll pay Income Tax on any part of the lump sum that goes above either:

  • your lump sum allowance 
  • your lump sum and death benefit allowance

Find out what your lump sum allowances are.

You may have to pay Income Tax at a higher rate if you take a large amount from a private pension. You may also owe extra tax at the end of the tax year.

If your pension provider paid you money owed from previous tax years

Your pension provider will usually pay any money they owe you from previous tax years (‘payment in arrears’) as a single payment. This could have temporarily put you into a higher tax bracket and meant that you paid too much tax.

You can ask HM Revenue and Customs (HMRC) to recalculate your tax.

  1. Ask your pension provider for a written breakdown (often called a ‘payment schedule’) showing exactly how much money you were owed for each tax year.

  2. Contact HMRC to give them this information and ask them to recalculate your payment for each tax year. You can upload documents digitally through your personal tax account or send them by post.

  3. HMRC will refund any extra tax you’ve paid this year.

4. How your tax is paid

The way your pension is taxed depends on:

  • the type of pensions you get
  • whether the payments are a regular income or a lump sum
  • whether you have any other income

If you get the State Pension

When you get your State Pension, it is not taxed before you receive it. You may have to pay tax on it depending on your total income for the tax year.

If you’re working or getting a private pension, you’ll usually pay more tax to include any tax you need to pay on your State Pension. Your tax code will change to collect this.

If you get State Pension, find out how tax on your State Pension is calculated.

If the State Pension is your only income 

If you go over your Personal Allowance and you have tax to pay on your State Pension, HMRC will send you a Simple Assessment tax bill. This will tell you how much you owe and how to pay it.

If your income is below your Personal Allowance, you will not usually need to pay tax.

If you get a private or workplace pension

Most pension providers deduct Income Tax using Pay As You Earn (PAYE).

Your private pension provider will usually take off any tax you owe before they pay you. This may include any tax you owe on your State Pension.

If you have more than one pension provider (for example, from a workplace pension and a personal pension) or employer only one will take the tax for the State Pension.

You may have a different tax code for each pension and job.

At the end of the tax year you’ll get a P60 from your pension provider showing how much tax you’ve paid.

If you pay too much tax on your pension, you can check how to claim a refund.

If you send a Self Assessment tax return

You must fill in a Self Assessment tax return after the end of the tax year.

You must include any income from your State Pension and private pensions.

5. Tax when you live abroad

You may be taxed on your pension by the country where you’re resident and by the UK.

You’ll pay UK tax on your pension if either:

The amount you pay depends on your income. You need to tell HMRC if you move abroad.

You may not have to pay twice if the country you’re resident in has a ‘double-taxation agreement’ with the UK. Your country’s tax treaty will tell you where to pay tax.

6. Tax on unauthorised pension payments

You’ll pay up to 55% tax on payments from your pension provider if they make an ‘unauthorised payment’. This is a payment made outside of the government’s tax rules and usually includes:

Some companies advertise personal loans or cash advances if you take your pension early. These payments are unauthorised and you have to pay tax on them.