Understanding tax and your pension
Source: gov.uk (2025-07-28)

Find out how tax works on pensions, savings and additional income, before and after you retire.

Tax on pensions, savings and additional income can be confusing. The way you pay tax depends on the kind of pension you get, and whether you have any other income.

This guidance brings together some of the most common queries and concerns, and provides you with reassurance on how some of our processes work.

Understanding tax when you get a pension

Whether you receive a State Pension (https://www.gov.uk/new-state-pension), a private pension (https://www.gov.uk/personal-pensions-your-rights) or a workplace pension (https://www.gov.uk/workplace-pensions), you may have to pay tax.

You pay income tax if your total annual income, including any pensions, adds up to more than your Personal Allowance (https://www.gov.uk/income-tax-rates) (the amount of income you do not have to pay tax on).

If you’re taking a private pension, you may be able to take a lump sum of money free from Income Tax. Read about the rules surrounding Individual Lump Sum Allowances (https://www.gov.uk/guidance/find-out-the-rules-around-individual-lump-sum-allowances) for more details.

You can check if you may have to pay tax on your pension (https://www.gov.uk/guidance/check-if-you-have-to-pay-tax-on-your-pension).

Read about tax when you get a pension (https://www.gov.uk/tax-on-pension) for more detailed information.

Understanding tax when you have other sources of income

The way you pay tax depends on the kind of pension you get, and whether you have any other income.

If you continue to work

You may be working while claiming your State Pension, private pension or workplace pension.

Your private pension or workplace pension provider will deduct any tax due before they make payments to you.

Your employer will usually take any tax you owe off your income. To understand how this works, read about tax when you get a pension — how your tax is paid (https://www.gov.uk/tax-on-pension/how-your-tax-is-paid).

You can check if the tax on your payslip is correct (https://www.gov.uk/guidance/check-if-the-tax-on-your-payslip-is-correct).

You may have a different tax code on any:
- private pensions
- workplace pensions
- other sources of employment
If you are self-employed you may need to fill in a Self Assessment tax return (https://www.gov.uk/self-assessment-tax-returns).

Tax when you have shares

Income you earn from an ISA is not taxable. However if you buy or sell shares and receive income from them you may have to pay tax. You may also have to pay tax on dividends for any shares you own. Read about:
- tax when you buy shares (https://www.gov.uk/tax-buy-shares)
- tax when you sell shares (https://www.gov.uk/tax-sell-shares)
- tax on dividends (https://www.gov.uk/tax-on-dividends)
Savings interest and tax

You can earn some interest from your savings without paying tax. However, there are some rules (allowances) that apply. It’s important to be aware of this, to avoid unexpected bills at the end of the tax year.

Read about tax on savings interest and how much tax you pay (https://www.gov.uk/apply-tax-free-interest-on-savings).

Taxable and tax-free state benefits

Some state benefits are taxable. Read more about tax-free and taxable state benefits (https://www.gov.uk/income-tax/taxfree-and-taxable-state-benefits).

Get help with your Simple Assessment letter

You may get a Simple Assessment letter by post, or to your personal tax account if you have one, asking you to pay Income Tax.

HMRC may send you a Simple Assessment tax bill (https://www.gov.uk/check-simple-assessment) if you:
- go over your Personal Allowance (https://www.gov.uk/income-tax-rates) and have tax to pay on your State Pension
- owe Income Tax that cannot be automatically deducted from your income
- owe us £3,000 or more
This letter will tell you how much you owe and how to pay your Simple Assessment tax bill (https://www.gov.uk/simple-assessment).

Check if you’ll need to pay back your winter payment

If you were born before 22 September 1959, you could get a payment to help you pay your heating bills this winter (https://www.gov.uk/winter-fuel-payment). If you’re eligible, you’ll automatically get this payment.

If your total income is over £35,000, you’ll need to pay back the payment.

Check if you’ll need to pay back your winter payment (https://tax.service.gov.uk/guidance/check-if-hmrc-will-take-back-your-winter-payment)

HMRC will automatically collect the payment through your tax code unless you already file Self Assessment tax returns.

This means we’ll change your tax code for the 2026 to 2027 tax year. For a typical payment of £200, we’ll deduct approximately £17 per month.

In the 2027 to 2028 tax year, we’ll deduct approximately £33 per month for a typical payment of £200. This is because we’ll be collecting your payments from 2026 and 2027. It will then return to approximately £17 per month for the 2028 to 2029 tax year.

If you’re registered for Self Assessment

If you file your Self Assessment tax return online each year, HMRC will automatically include the payment on your 2025 to 2026 tax return as part of your income. If you file a paper Self Assessment tax return, you’ll need to include the payment on your 2025 to 2026 tax return.

Telling HMRC about a change in circumstances

From time to time you may need to tell us about changes to your circumstances.

These changes may be minor, such as a change of name or address. However, some changes may impact your financial position. We have support to help you understand these circumstances.

Changing your name or address

You can use your HMRC app or online account to change your name or address (https://www.gov.uk/tell-hmrc-change-of-details), without needing to call us. You’ll need to sign in. If you do not already have sign in details, you’ll be able to create them.

If you cannot notify us of these changes using the HMRC app (https://www.gov.uk/guidance/download-the-hmrc-app) or personal tax account (https://www.gov.uk/personal-tax-account), you can contact us to change your address and personal details (https://www.gov.uk/government/organisations/hm-revenue-customs/contact/change-your-personal-details).

Dealing with your benefits, tax and pension after the death of a husband, wife or partner

We understand that dealing with the death of a loved one can be difficult. Your financial position may change as a result of this, so it’s important to be aware of how this may impact you.

Read about your benefits, tax and pension after the death of a partner (https://www.gov.uk/death-spouse-benefits-tax-pension) and tax on property, money and shares you inherit (https://www.gov.uk/tax-property-money-shares-you-inherit) for support.

How Capital Gains tax works when downsizing or selling your property

Downsizing or selling a home can be a big change. It’s important that you’re aware of any Capital Gains tax that may apply to you.

Read about:
- tax when you sell your home (https://www.gov.uk/tax-sell-home) if you’re selling your home
- tax when you sell property (https://www.gov.uk/tax-sell-property) if you’re selling a property that’s not your home
Tax if you decide to move abroad

You need to tell us if you’re:
- leaving the UK to live abroad permanently
- going to work abroad full-time (including for a UK-based employer) for at least one full tax year
- a foreign national leaving the UK
This is because moving abroad can affect your tax. For more information about what this means to you and how to tell us, read about tax if you leave the UK to live abroad (https://www.gov.uk/tax-right-retire-abroad-return-to-uk).

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