Will you still get taxed in retirement?

Will you still get taxed in retirement?

Retirement has little effect on how you’re taxed, but it can seem complicated as you’re likely to have several sources of income

You still have to pay tax on your income after you’re retired. But, just as before, you have a personal allowance each year. This means you can receive up to £11,850 in the tax year (2018–2019) and not pay any tax.

Once your income exceeds £11,850 – from pensions, savings, property or employment – you start to pay income tax. You can check the current income tax rates here.

You may also qualify for some other tax allowances. The Married Couples Allowance allows couples, where at least one person was born before 6 April 1935, to get a reduction in their tax bill of up to £869.50 (in the 2018–2019 tax year).

And, if you’re married or in a civil partnership and one of you hasn’t used up all your personal allowance for the year (because you’re on a low income), you may qualify for the Marriage Allowance. This lets you transfer up to £1,185 (in the 2018–2019 tax year) of your unused personal allowance to your partner, providing they’re a basic-rate taxpayer.

National Insurance

The good news is that, if you continue working beyond State Pension age, you don’t have to pay National Insurance Contributions on your earnings.

Your State Pension

Your State Pension counts as income for tax purposes, but it’s paid without any tax taken off. So when and how do you pay tax on it?

If you have deferred your State Pension in exchange for a one-off lump sum, be aware that when you choose to take the lump sum can affect the amount of tax you pay on it.

Your other pensions

You can normally take out some money (up to 25%) from your pension tax free. The rest is taxable as income.

If you have a defined contribution pension, once you reach 55 you can choose how and when you take your money. The decision you make can have a big effect on the amount of tax you pay. For example, you could choose to take out a lump sum but, by doing so, you may tip yourself into a higher tax bracket for the year, leading to an unwanted tax bill and less money in your pocket.

You can find details about your pension options and the tax implications of each at Pension Wise. Find out what type of pension you have here.

Things to watch out for

Tax on your savings

The way your savings are taxed doesn’t change when you retire or reach State Pension age. Banks and building societies now pay savings interest without any tax taken off but depending on your situation, you may still have to pay tax on some of your savings income. Read more about how savings are taxed here.

Where to find help

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