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Tax on Pensions and Pension Contributions

Tax on Pensions and Pension Contributions
Published:  25 Feb at 9 AM
The basic 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. 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.

It's important that you fill in the form HMRC sends you just before State Pension age - form P161 Pension Coding - giving details of your income so that HMRC can make sure you pay the right tax from State Pension age. If you don't get one you should get in touch with your Tax Office.

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. Your Tax Office sends a tax code to your pension payer to show 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.

If your pension is taxed through your employer or your pension payer you'll receive a PAYE Coding Notice (form P2) from your Tax Office at least once a year telling you your tax code. It's important to check this to make sure it shows the right amount of tax on your State Pension. Follow the links below to find out more.

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