Your questions answered!

Q. I am approaching retirement age and I am looking forward to receiving my state pension. Will I have to pay tax on it?

A. Currently, the state retirement pension counts as taxable income. However, whether you must pay tax on it will depend on the level of other taxable income you receive.

If your state pension exceeds your personal tax allowance (£12,500 in 2020/21), but you do not have any other source of income, then HMRC will collect the tax in a lump sum through another method. You will be sent a Simple Assessment letter (PA302 calculation). You will need to check that the amounts in it are correct and pay by the following 31st January. If you disagree with the figures, you should contact HMRC straightaway. Late payment interest will start after the payment deadline.

There is no mechanism to deduct tax due at source so those with occupational pensions have their personal tax allowance reduced by the amount of the state pension so that the tax due on both sources is all deducted from the occupational pension.

Further information about tax on pensions, can be found on the GOV.uk website.

About the Author

Martin Johnson

Partner

With expertise in advising family-owned companies on a range of tax, accountancy and business issues, Martin also has an in-depth knowledge of the automotive and property sectors. In addition, he provides advice on inheritance tax planning and financial management to owner-managed businesses.  Martin leads the firm in developing its expertise in the buy-to-let sector, advising both residential and commercial property owners on relevant tax and legislation issues. A further element to Martin’s role is to build Torgersens’ relationships with banks, financial advisors and specialists in commercial and employment law to ensure that the firm’s clients have access to market-leading guidance.  

To get in touch please e-mail martin.johnson@torgersens.com.