Tax on your State Pension :Cross Stitch – Money, tax and benefits

The State Pension counts as taxable income but is paid to you without tax taken off. How you pay the tax due on your State Pension will depend on a number of factors. If your income is low there may be no tax to pay – and you may be able to get other benefits.

The State Pension is based on the National Insurance contributions you’ve paid, or have been credited with, during your working life.

When you reach State Pension age you no longer pay National Insurance contributions, but you don’t automatically stop paying Income Tax. If your taxable income – including your State Pension – is more than your tax-free personal allowance you’re still a taxpayer and must contact HM Revenue & Customs (HMRC) if you’re not already paying tax.

Remember, your personal allowance may change with age and your income. If your tax-free allowances are the same as or more than your taxable income, no action is necessary.

If you think that you shouldn’t be paying tax but are, you may be able to claim a refund.

If you get another pension (like a retirement annuity or a personal or company pension) and you pay tax on this, you’ll usually pay tax on your State Pension at the same time. This is done through the PAYE (Pay As You Earn) scheme. HMRC sends a tax code to your pension payer to tell them how much tax to take off, including any due on your State Pension. This might make the tax on your company or personal pension seem high but it’s because it includes the tax due on your State Pension.

Tax if you only get the State Pension

The way that you pay tax on your State Pension depends on whether you are employed or not:

• if you’re working, you’ll pay tax through your employer’s PAYE scheme depending on the amount you earn
• if you’re not working, you’ll need to pay tax through Self Assessment by completing a tax return

If you don’t normally complete a tax return, you’ll need to use form SA1 to register for Self Assessment before you can get a tax return.