Is My Pension Taxed?

If you are about to retire, whether that be from taking a private pension or your State pension, you may wonder if your pension will be taxed.

The short answer is that yes, all of your income is taxed and a pension is no exception. Even the State pension is subject to tax at whatever tax rate that you may pay. Your tax situation may become more complicated as you may have more than one source of income when you start receiving a pension, particularly if you have different pensions being paid to you. One of your sources of income will be deemed to be your main source and your other incomes will be taxed accordingly and your tax code may be changed to take account of multiple incomes.

At the end of the tax year, if you have multiple sources of income then it may be worth checking that you have paid the correct amount of tax as it can be difficult to apply the correct tax code if your incomes amount to levels that span a few tax rates.

Of course you will still be entitled to the personal allowance which will give you a level of tax free income, and if you have reached age 65 you will also get an additional age allowance which will help reduce your tax bill as well.  The age allowance is brought in in the tax year where you will reach that age – i.e. you will be 65 by the end of that tax year, so even if you are 64 on the 6th April you will likely still be entitled to the age allowance.

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