Tax in retirement
Will I pay tax on my pension income?
The income you receive from your pension is subject to income tax. The income tax bands for the tax year 2018/19 are shown below. These are set by the Government and change every year. You can check the latest details or historic tax bands directly at Income tax rates or with a financial adviser or an accountant.
If your total income from all sources adds up to more than your Personal Allowance you will have to pay tax at the rate shown below.
|Tax band for 2018/19||Taxable income||Tax rate|
|Personal Allowance||Up to £11,850||0%|
|Basic rate||Between £11,851 and £46,350||20%|
|Higher rate||Between £46,351 and £150,000||40%|
|Additional rate||More than £150,000||45%|
The tax you pay depends on your individual circumstances. The above examples are based on current law and tax rates and may change. Income tax bands are different if you live in Scotland.
The amount you can earn in a tax year without paying tax is called your Personal Allowance. You’ll only pay tax on income over that allowance. The Personal Allowance drops by £1 for every £2 above £100,000. There is no Personal Allowance where income is higher than £123,700. Your Personal Allowance may be bigger if you claim Marriage Allowance or Blind Person’s Allowance.
Tax will normally be taken off and paid to HMRC by your pension provider before you receive your income.
We use the tax code we get from HMRC to work out how much tax to deduct from your pension.
How does inheritance tax affect my pension pot?
If you leave your money in your pension pot, then on your death it will usually pass to your beneficiaries free of Inheritance Tax. If you take money out of your pension, you may lose any Inheritance Tax protection on that money as it will be treated differently for Inheritance Tax purposes.
How much of my pension pot can I take tax free?
You can usually take up to 25% of your pension pot as a tax-free lump sum. If you choose to buy a retirement income product, you'll need to take your tax-free cash first. If you opt for withdrawals from your pension then the first 25% of each withdrawal will be tax-free.
How does my pension provider know how much tax I should pay?
The tax deducted is based on the tax code that HMRC gives to your pension provider.
If your pension provider hasn’t received confirmation of your tax code from HMRC, or you haven’t been able to provide a current P45, then your pension provider will use an emergency tax code. This may mean you’ll pay more tax than is due. The emergency tax code assumes you’ll carry on receiving the same amount each month, even if the money you’re taking is a one-off withdrawal.
What is my Standard Personal Allowance?
The standard Personal Allowance for the 2018/19 tax year is £11,850. Any income less than this won’t be taxed. You can check your own Personal Allowance at Income tax rates.
How can I check the tax I’ve paid is correct?
If you want to check the amount of tax you've paid is correct, you can do that at GOV.UK.
If you think you've paid too much tax, you can wait for your pension provider or HMRC to resolve the over-payment, or, if you don’t want to wait, you can reclaim it. Find out more about reclaiming any overpayment at claiming a tax refund.
Will I pay tax on all of my income?
It depends. Your taxable income will include things like:
- the State Pension you get (either the Basic State Pension or the New State Pension)
- any Additional State Pension
- income from a private pension (workplace or personal)
- earnings from employment or self-employment
- any taxable benefits you get
- any other income, such as money from investments, property or savings
You will have to pay tax if your total income adds up to more than your Personal Allowance. If you're not sure whether your income should be taxable, please contact contact HMRC directly or speak to your financial adviser or an accountant.
What is my tax code?
HMRC issues tax codes to employers and to pension providers like us to tell us how much tax to deduct from your income. Your tax code for the 2017/18 tax year is shown on the P60 we sent you (if you have a retirement income product with us).
HMRC will send you details of your tax code before 6 April each year. If you haven’t received this for the 2018/19 tax year, you can request a copy directly from contact HMRC or get your tax code online.
If you want to understand more about tax codes, including what the numbers and letters mean, please visit Tax codes.
You're taking too much tax, what can I do?
We use the tax code that we receive from HMRC to work out how much tax to deduct from your annuity income. If you think this is wrong and you’re paying too much tax, you should contact contact HMRC. There is a lot of useful information on claiming a tax refund about claiming a tax refund and adjusting your tax code.
Who decides what tax code should be used for my income?
What about my State Pension, is that taxed?
Yes, your State Pension counts towards your taxable income but the government pays it to you gross. If you receive income from elsewhere such as from an employer or a private pension provider, HMRC will ask your employer or pension provider to deduct any tax you owe on your State Pension. Further information can be found on How tax on your pension is paid.
How do I contact HMRC and what information will I need?
If you're discussing your retirement income or any tax matters with HMRC, you'll need your National Insurance number. You may also need your PAYE reference which is likely to be 846/LEG8 or 206/RAC238. You can find your PAYE reference on your P60.
You can find contact details for HMRC Contact HMRC here.
Will a lifetime mortgage affect my tax position?
The money you receive will be paid free of tax. Depending on what you do with the money, tax may become payable.
Please talk to your adviser to find out how it may affect your tax position.