HMRC has issued a warning to all state pensioners born before 1960, clarifying that they are not exempt from tax on their state pension. The current state pension age is 66, covering all pensioners born before 1960.
State Pension and Taxable Income
Due to how the Department for Work and Pensions (DWP) calculates state pension payments, retirees are increasingly approaching the HMRC tax-free allowance threshold. The tax-free personal allowance stands at £12,570 per year. Any income above this amount is subject to tax.
On X (formerly Twitter), HMRC stated: "Tax in retirement works like usual. Up to £12,570 of your personal income may be tax-free (your Personal Allowance). Anything above that is taxed based on how much you earn. Taxable income may include your State Pension, other pensions, savings and investments."
What Counts as Taxable Income?
HMRC explains that you must pay tax if your total annual income exceeds your personal allowance. Your total income may include:
- The basic State Pension or new State Pension
- The Additional State Pension
- A private pension (workplace or personal) — some of which may be tax-free
- Earnings from employment or self-employment
- Taxable benefits
- Other income such as from investments, property, or savings
State Pension Age and National Insurance
The state pension age is rising to 67 by March 2028. The amount you receive depends on your National Insurance record. HMRC notes: "It counts as taxable income."
How Tax Is Calculated
To determine if you owe tax, you must add up all income received each year, including state pension, workplace or private pensions, investments, rental income, and self-employment earnings. The first £12,570 is tax-free (personal allowance). Income above this is taxed at different rates based on thresholds.
HMRC advises: "You'll simply add up all the money you get each year (your income) from things such as your State Pension, any workplace or private pensions, investments, rented property and self-employment. You'll use this to work out if you owe any tax. For some people, a chunk of their income will be tax-free. This is called a Personal Allowance. The current standard tax-free Personal Allowance is £12,570 a year. If you get a Personal Allowance and your income goes over that amount, you'll start to pay tax on it. The rates you pay are separated into 'thresholds'. A threshold is simply a financial limit."
