Guides

This content was reviewed and approved by Tamlin Russell.

The information on this page should not be considered as financial advice. If you are unsure what’s right for you, please make sure you speak to a financial adviser. 

Pensions are classed as a form of income and are taxed once they exceed the Personal Allowance.

Pension income, combined with the State Pension, will be subject to tax once you go over the Personal Allowance. This guide will provide information around how tax works with pensions, and what you should know before you start taking your pension. That way, you’ll know how much a pensioner can earn before paying tax in the UK.

How much can a pensioner earn before paying tax in the UK? 

Income from pensions is taxed in the same way as earnings from employment. That’s because pensioners do not receive a higher Personal Allowance than other taxpayers, and you will usually pay Income Tax on any income that exceeds this threshold. This includes total income from:

• The basic State Pension, new State Pension or Additional State Pension.
• Private pensions (workplace or personal).
• Earnings from employment or self-employment.
• Any other income from investments, property or savings.
• Any taxable State Benefits .

Do you get taxed on your pension?

Yes, you typically get taxed on your pension if your income, including any pension income, is over the Personal Allowance. For the 2025/26 tax year, the tax-free personal allowance is £12,570.

Anything you earn annually over £12,570 up to £50,270 is taxed at 20%. Between £50,270 and £125,140 is taxed at 40%, and then anything above that is taxed at 45%. As it currently stands, tax bands don’t change when you retire.

How much tax do you pay on your pension?

To find out how much tax you pay on pension, see the calculation below:

Tax rates correct for the 2025/26 tax year, data taken from gov.uk.

Your Personal Allowance may also increase in the following situations:

• £13,830 if you claim the Marriage Allowance.
• £15,700 if you claim the Blind Person’s Allowance.

You should also be aware, the Government have announced that from April 2027, almost all pension fund death benefits will be assessable for inheritance tax (IHT) after you die.

It’s worth bearing in mind that due to the way the tax-free Personal Allowance is treated, for anyone earning between £100,000 and £125,140, you actually pay an effective 60% tax rate on that portion of income. This is because once you earn more than £100,000 your personal allowance goes down by £1 for every £2 that your adjusted net income exceeds £100,000, and is zero if your income is £125,140 or above.

Do I pay tax on all my pension income?

While most pension income is taxed in the UK, you won’t pay tax on: 

If you’re unsure how tax affects your pension income, speak to a financial adviser.

How do tax-free pension payments work?

If you have a pension, then 25% of your pot can normally be taken tax-free, subject to limits. Some people may take the money as one lump sum, others may be able to take a series of smaller lump sums.

What do I get tax-free from a lump sum pension withdrawal?

If you take your pension as a lump sum, 25% will be tax-free, and the remainder will be taxed as income. For example, if you had a pension of £50,000 and took it all in a lump sum, then you would get £12,500 tax-free, and you would pay tax on the remaining £37,500.

How does pension drawdown work?

If you choose to use pension drawdown, you can take your 25% tax free cash entitlement, whilst leaving the remainder invested. The remaining 75% can then be drawn as taxable income as and when it is needed.

Some providers will let you enter drawdown gradually, allowing you to take your tax free cash entitlement in stages, often referred to as 'drip-feed drawdown' - as an example, if you had a £50,000 pension and decided to take 10 payments of £5,000, then you could take £1,250 tax-free and £3,750 as taxable drawdown income each time you received a payment.

Often, people will take their 25% tax-free cash entitlement and use the remaining 75% to purchase a retirement income product, such as an annuity or pension drawdown.

What do I get tax-free from a defined benefit pension?

Defined benefit pension schemes will offer the option of taking a tax-free lump sum as well as receiving your guaranteed income. Your guaranteed income from your defined benefit pension will be treated as income and is therefore taxable.

What do I get tax-free from an annuity?

Before you purchase an annuity, you can take 25% of your pension pot as a tax-free lump sum, subject to limits. Then, the remaining 75% can be used to purchase an annuity. If your annuity income pushes you over the tax-free personal allowance, then you will have to pay income tax on each payment, like you would with a salary.

What about pensions and emergency tax codes?

Single or ad-hoc payments, or initial payments of regular pension income, are normally taxed on the ‘Emergency month 1 basis’. The emergency tax code will often result in an overpayment of tax - but for additional rate taxpayers, it could result in an underpayment. If you've overpaid or underpaid tax by the end of the tax year, HMRC will contact you. You can also reclaim an overpayment of tax on a pension by completing the appropriate HMRC form - Overpayments and underpayments.

Do I pay tax on my State Pension?

The State Pension is subject to income tax and is taken into account first in any allowance calculations.

In 2025/26 the full new State Pension was £230.25 per week, or £11,973 annually, which is below the tax-free Personal Allowance. If you rely solely on the State Pension, then you won’t pay tax. If you earn extra income, whether from a job or pension annuity, then you may need to pay tax if you exceed your Personal Allowance.

Let’s use an example. Sheila receives her State Pension and works a part-time job to boost her income. She receives £230.25 a week from the State Pension and receives £307.69 a week from her part-time job (annual salary of £16,000). Her total annual income is £26,600 so Sheila must pay tax on £15,403 of her income.

Data based on 2025/26 tax figures and are subject to change. These are an illustration, rather than a confirmed result.

The full new State Pension is to rise to £241.30 per week in April 2026 (£12,547 a year) and is likely to exceed the Personal Allowance in April 2027. When this happens, the Government have announced that pensioners who have no other sources of income will not have to pay any income tax before 2030.

Pension option tax calculations

With so many ways to take your pension, knowing what is and isn’t tax-free can be complicated. This table will summarise what we’ve covered in this guide, so you can be confident in your options. 

Get the most out of your pension with impartial retirement advice

Knowing what to do with your pension isn’t always an easy decision. LV=’s retirement advice service will help you to understand what you could get from your pension, and what your options are, so you can have financial peace of mind. Why not speak to one of our friendly advisers today? Request a call back.

Pension taxes FAQs

Are you wondering how much a pensioner can earn before paying tax in the UK? Here’s a selection of the most frequently asked questions about pensions and taxes:

1. How much of my pension is tax-free?

From age 55 (rising to 57 from April 2028), you can normally withdraw up to 25% of your pension tax-free, provided you don’t exceed the lump sum allowance (LSA). For the 2025/26 tax year, the standard LSA is £268,275, though it may be higher if you have lifetime allowance protection.

Some people may be able to take more than 25% tax-free if they joined their pension scheme before April 2006 and the scheme rules allowed it.

2. What other retirement income might I pay tax on?

Other forms of retirement income that may be subject to tax include:

• Savings and investments: Many people use their savings and investments to supplement their retirement income. These can also be subject to tax, although some exceptions apply.
• Property: If you downsize or use an equity release product, the money you receive is generally tax-free, provided the property is your main residence. However, tax may apply if you use part of your home for business purposes or rent out a portion of it. Any income earned from letting out an additional property will also be taxable.
• Part-time work: While part-time work can offer a helpful boost to your income and a range of other benefits, it’s important to remember that any earnings will be taxable. 

3. What retirement income won’t I pay tax on?

You may not have to pay tax on the following income:

• ISAs: Certain products, such as ISAs, are tax-exempt, and you won’t pay tax on any income or gains they generate.
• Personal Savings and Dividend Allowances: You may also benefit from an annual Personal Savings Allowance, the Starting Rate for Savings and/or a Dividend Allowance, offering extra annual tax-free income.
• Landlord income: If you rent out a room in your main home, the government’s Rent a Room Scheme allows you to earn up to £7,500 per year tax-free from letting out furnished accommodation.