Retirement
When you retire you should inform HM Revenue & Customs of your date of birth and the amount of state pension you will be receiving. This will enable them to update your notice of coding to give you the correct personal allowance and to restrict it by your state pension. Your state pension is paid to you without tax being deducted from it but it still forms part of your taxable income for the year. HM Revenue & Customs tries to collect the tax due by restricting your personal allowance.
Personal allowances
If you, or your spouse, is aged over 65 you may be entitled to the higher personal allowances. However this will be restricted to the basic personal allowance for those under 65 by £1 for every £2 that your taxable income falls above £20,900 (rate for 2007/2008).
Taxing your State Pension
The amount taxable in any tax year is the amount you would receive if you had it paid weekly. You may receive your pension monthly or quarterly but this does not affect the way the tax due is calculated. A married woman's state pension is treated as her income even if it is paid as a result of her husband's contributions.
If the pensions includes an extra amount known as the "adult dependency addition" this will be taxed on the person to whom it is paid.
Retirement Annuities
Pensions are normally paid from retirement annuity contracts after basic rate tax has been taken off. If your total taxable income is covered by your personal allowances, you can ask your pension provider to pay your retirement annuity without deducting tax. You will need to get form R89 from your pension provider.
This page was last reviewed on 16 April 2007. The information may not reflect changes in legislation made after this date.
This is only a guide to your tax position and should not be relied on in place of professional accounting or tax advice. Any calculated figures are illustrative and are based on the data you provided.
