The UK State Pension is taxable income. However, it is paid gross — without any tax deducted. Whether you actually owe tax on it depends on your total income and whether it exceeds the Personal Allowance. For many retirees, the State Pension alone does not trigger a tax bill, but combined with other income it often does.
State Pension Rates (2025/26)
| Pension Type | Weekly Rate | Annual Amount |
|---|---|---|
| New State Pension (full) | £230.25 | £11,973 |
| Basic State Pension (full) | £176.45 | £9,175.40 |
The new State Pension applies to those who reached State Pension age on or after 6 April 2016. The annual amount of the full new State Pension (£11,973) sits just below the £12,570 Personal Allowance, leaving only £597 of tax-free income from other sources.
When You Will Owe Tax
If the State Pension is your only income and you receive the full amount (£11,973), you are within the Personal Allowance and owe no tax. But if you have any additional income — a private pension, part-time work, rental income, or savings interest above the allowances — the total may push you above £12,570.
Example: Full new State Pension (£11,973) plus a private pension of £8,000 per year:
- Total income: £19,973
- Personal Allowance: £12,570
- Taxable income: £7,403
- Tax at 20%: £1,480.60
How HMRC Collects the Tax
Since the State Pension is paid without tax deducted, HMRC uses other methods:
- If you have a private or workplace pension: HMRC adjusts the tax code on your other pension to collect tax on both the private pension and the State Pension. Your private pension provider deducts more tax to cover both.
- If you are employed: HMRC adjusts your employment tax code to account for the State Pension.
- If you have no other income subject to PAYE: You may need to complete a Self Assessment tax return and pay the tax directly.
Check your tax code carefully — it should reflect the State Pension income. A common issue is HMRC coding in the wrong State Pension amount, leading to under or overpayment.
State Pension and National Insurance
You do not pay National Insurance on the State Pension. NI obligations end when you reach State Pension age, regardless of whether you continue working. If you work past State Pension age, you pay Income Tax on your earnings but no employee NI.
Deferring Your State Pension
You can choose to defer taking your State Pension. For each complete 9 weeks of deferral, your pension increases by 1% (equivalent to approximately 5.8% per year). There is no limit on how long you can defer. The higher pension you eventually receive is still taxable.
Whether deferral makes financial sense depends on your health, other income, and tax position. If you are still working and paying Higher Rate tax, deferring until you retire (and potentially drop to Basic Rate) can reduce the total tax paid on the pension.
Marriage Allowance in Retirement
If one partner has income below £12,570 (e.g., a lower State Pension or no other income), they can transfer £1,260 of their Personal Allowance to the other partner via Marriage Allowance, saving up to £252 per year. This is particularly common among retired couples where one partner has a smaller pension.
Key Takeaway
The full new State Pension uses up nearly all of your Personal Allowance. Any additional income will almost certainly be taxable. Check your tax code each year to make sure HMRC is accounting for your State Pension correctly — errors are common and can result in unexpected bills or overpayments.