Let’s Talk About Your State Pension and Tax

We’re here to walk you through how tax works on your state pension when it goes above your tax-free allowance. Don’t worry – we’ll keep it simple!

Your Guide to Tax-Free Allowance

Good news! Everyone in the UK gets a tax-free amount. Think of it as your personal piggy bank – you can earn up to £12,570 without paying any tax in 2025/26.

Understanding Your State Pension

Your state pension is your well-deserved reward from the government when you reach your state pension age (currently 66, but scheduled to increase to 67 between 2026 and 2028 and eventually make its way up to 68). While you’ll need to pay some tax on it, don’t worry – you’ll get your full pension first, and the tax will get sorted out later.

What Happens When You Go Over £12,570?

If your pension is more than £12,570, you’ll need to pay 20% on the little that’s over £12,570. If you have other sources of taxable income there will be more to pay. Let’s break it down:

1. Calculating Your Tax – It’s Easier Than You Think!
   • Here’s a simple example: If you get £14,000 yearly, you’ll only pay tax on £1,430 (that’s just the amount over £12,570).
2. Easy Ways to Pay
   • A Simple Letter in the Post: HMRC will send you a letter showing exactly what you need to pay.
   • Tax Return Option: If your finances are a bit more complex, you might need to fill in a tax return.

Meet Mary – Here’s Her Story

Let’s see how this works with an example:

• Mary receives £14,000 in her state pension
• That’s all the income she has
• She can keep £12,570 tax-free
• She only pays tax on £1,430
• Her yearly tax is just £286 – that’s all!

Quick Tips to Remember

• Keep your tax-free amount in mind (£12,570)
• Just keep track of your pension payments
• Look out for updates in the post

Understanding Your Tax Bill (It’s Simpler Than You Think!)

Here’s the friendly scoop on tax bills:

When Will You Get a Tax Bill?

• You’ll receive one if your taxable income pension tops your tax-free amount
• Or if you have other untaxed income (like rent, salary, interest or dividends) that brings your tax to £3,000 or more
• Both dividends and interest have their own (additional) personal allowance amount (depending on your level of income).

Easy Payment Steps

• HMRC will send you a letter with all the details
• Choose what works best for you: online, bank transfer, or cheque
• Got your bill before October 31? Take your time – pay by January 31
• Bill arrived after October 31? No rush – you have three months

Good News!

• It’s much easier than doing a full tax return
• HMRC does all the maths for you
• Spotted something that doesn’t look right? Just let HMRC know within 60 days
• Need a helping hand? That’s what we’re here for!

Remember: If you’re not sure about anything to do with your tax, it’s always better to ask for help than worry about it.