State Pension and Tax
The State Pension is taxable income, but no tax is deducted at source. Instead, if you have other taxable income (like a private pension), HMRC adjusts the tax code on that income to collect the tax on both.[2]
If the State Pension is your only income and it’s below the Personal Allowance (£12,570), you won’t pay any tax. The full new State Pension is around £12,548 per year, so many people receiving only the State Pension pay no tax.
Private and Workplace Pensions
When you take money from a private or workplace pension, you can usually take 25% as a tax-free lump sum. The remaining 75% is taxable as income.[1]
Your pension provider deducts Income Tax through PAYE before paying you, using a tax code supplied by HMRC.
Pension Drawdown
With pension drawdown (or flexi-access), you take money from your pension pot as and when you need it. Each withdrawal is treated as:[1]
- 25% tax-free
- 75% taxable at your marginal rate
Alternatively, you can take your entire 25% tax-free lump sum upfront and then have all subsequent withdrawals fully taxable.
Tax-Free Pension Lump Sum
The tax-free lump sum is capped at £268,275 (the Lump Sum Allowance, which replaced the old lifetime allowance from April 2024). Most people won’t exceed this.[1]
Emergency Tax on Pension Withdrawals
If your pension provider doesn’t have your correct tax code when you make a withdrawal, they’ll apply an emergency tax code. This often results in too much tax being deducted.[1]
You can reclaim overpaid tax by:
- Waiting for HMRC to adjust your tax code (can take several weeks)
- Claiming a refund using forms P50Z or P53Z (faster)
Tip: If you’re planning a large pension withdrawal, consider contacting HMRC beforehand to ensure your tax code is correct. This avoids the emergency tax issue.
When You Need Self Assessment
You may need to file a Self Assessment return if:[4]
- Your total income exceeds £150,000
- You have untaxed income alongside your pension
- You receive a foreign pension
- HMRC asks you to file
Frequently Asked Questions
Is the State Pension taxable?
Yes. The State Pension is taxable income, but no tax is deducted at source. If you have other taxable income, HMRC adjusts your tax code on that income to collect the tax owed on the State Pension.
How much of my pension can I take tax-free?
You can normally take 25% of your private or workplace pension as a tax-free lump sum. The remaining 75% is taxable as income at your marginal rate.
What is the pension tax-free lump sum limit?
The tax-free lump sum is capped at £268,275 under the Lump Sum Allowance, which replaced the old lifetime allowance from April 2024.
Why was too much tax taken from my pension withdrawal?
If your pension provider does not have your correct tax code, they apply an emergency tax code which often over-deducts. You can reclaim the overpayment using forms P50Z or P53Z, or wait for HMRC to adjust your code.
Further Reading
- Pension Contributions & Tax Relief — relief when paying in
- Pension Annual Allowance & Lifetime Limits
- Retirement & Tax — what changes when you stop working
- Personal Allowance & Tax Bands
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Sources
- Tax on your private pension contributions — GOV.UK
- Tax when you get the State Pension — GOV.UK
- Pension tax relief — GOV.UK
- Income Tax rates and Personal Allowances — GOV.UK
- Personal tax account — GOV.UK