1. What’s taxed and what’s tax-free

When you get money from a pension you pay tax on any income above your tax-free Personal Allowance.

How much Income Tax you pay depends on the tax rate that applies to you.

Your income includes:

  • the State Pension
  • money from private pensions (workplace, personal, stakeholder)
  • earnings from employment or self employment
  • any taxable benefits you might get
  • any other income, money from investments, property, savings

How you pay tax depends on your situation. Your pension provider usually takes some tax off before paying you money from a private pension.

Tax-free money from a pension

You can usually take 25% of a pension pot tax free. Your pension provider takes tax off the remaining 75% before you get it.

If your life expectancy is less than a year

You may be able to take your whole pension pot as a tax-free lump sum if you’re under 75 and your life expectancy is less than a year because of serious illness. If you’re over 75, you’ll pay 45% tax on the lump sum.

Tax-free allowances if you were born before 6 April 1948

You get a higher Personal Allowance.

If you or your spouse or partner were born before 6 April 1935 you might also be able to get Married Couple’s Allowance or Maintenance payments relief for payments to ex-spouses or partners.