Just because you retire doesn’t mean you stop paying tax. Some income you receive in retirement may be tax free (such as interest from ISAs or certain state benefits), but other income — such as your pension (including your state pension) is potentially taxable. Find out what you need to know and where you can go for help.
Your tax code
Your tax code(s) makes sure (in theory at least) that you’re paying the right amount of tax on your state pension and any private or workplace pensions you have, plus any other work you may do after you retire. Each pension you receive will have its own tax code, so you could have several different codes for each tax year.
Common tax code letters
If tax can sometimes seem like another language, tax codes can be completely baffling. Here’s a guide to what some of the most common codes mean:
– BR: Basic rate code — if you have one main pension and several smaller pensions, the smaller ones may be taxed at the basic rate of 20%.
– L: If you get the basic personal allowance (in tax year 2015/16 it’s £10,600), your tax code will be 1060L.
– P: If you’re aged 65 or over and you get the full age related allowance.
– Y: If you’re aged 75 or over and you get the full age related allowance.
– T: If you’re aged 65 or over and the age related allowance is tapered.
– 0T: If you’re aged 65 or over and the age related allowance is tapered completely.
– K: If you receive untaxed and taxed income you may be given a K code. For example, if you earn £5,000 in untaxed income and £8,000 in PAYE taxed income, you could be given the code of K500.
SAVVY TIP: There’s more information on letters in your tax code – what they mean on the Gov.uk website.
If you’ve paid too much tax
The Gov.uk website has some useful information on claiming a tax refund if you get a pension.
Don’t forget that while you still pay tax on your income, you don’t pay National Insurance once you’ve reached state pension age. There’s more information about Tax and National Insurance after state pension age on the Gov.uk website.
There’s lots of information on the Gov.uk website about tax when you get a pension
The tax help charity, Taxaid, has useful information for pensioners about Understanding your tax code.
Low Incomes Tax Reform Group also has lots of useful information on tax for people who’ve retired.
It also has worked examples of tax code problems if you’ve retired .
There’s also information on the National Audit Office of some problems pensioners have faced paying tax.
There are several sources of information on the phone that could be useful if you don’t understand your tax codes or if you’re getting multiple tax codes. They are:
Taxaid, which is a tax help charity. There’s information on how to get in touch with its helpline on its website.
Tax help for older people is a charity that aims to help older people with tax problems. Its home page has details of its helpline (towards the bottom of the page.
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