Understanding your tax code in retirement

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Just because you retire doesn’t mean you stop paying tax. Some income you receive in retirement will be tax free, but other income will not. Find out about your tax codes in retirement and where you can go for help.

Your tax code in retirement

Your tax code(s) are meant to makes sure that you’re paying the right amount of tax. That could be tax you owe on your state pension and any private or workplace pensions you have. You may also be taxed on any 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. This particular job or pension is being taxed at the basic rate of tax of 20%.
  • L: If you get the basic personal allowance in full (in tax year 2019/20 it’s £12,500), your tax code will be 1250L.
  • NT: You’re not paying any tax on this income or pension.
  • M: This means you have received 10% of your husband/wife or civil partner’s personal allowance, through the Marriage Allowance.
  • N: This means you have transferred 10% of your personal allowance, to your husband/wife or civil partner’s through the Marriage Allowance.
  • T: Your personal allowance has been reduced. It could be because you’re estimated to earn over £100,000
  • OT: Your personal allowance has been used up. You may also get this tax code if you’ve started a new job and your new employer doesn’t know what tax code to give you.
  • DO: Your income or pension is being taxed at the higher rate of tax.
  • D1: Your income or pension is being taxed at the additional rate of tax.
  • S: Your income is taxed using tax rates in Scotland. Your tax code will consist of the letter S and a number or numbers.
  • SOT: Your personal allowance has been used up. You may also get this tax code if you’ve started a new job and your new employer doesn’t know what tax code to give you.
  • BR: Basic rate code. This particular job or pension is being taxed at the basic rate of tax in Scotland of 20%.
  • SDO: Your income or pension is being taxed at the intermediate rate of tax in Scotland.
  • SD1: Your income or pension is being taxed at the higher rate of tax in Scotland.
  • SD2: Your income or pension is being taxed at the additional rate of tax in Scotland.
  • 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 £10,000 in PAYE taxed income, you could be given the code of K500.

SAVVY TIP: If your tax code has the letters M1 or W1 at the end, that’s an emergency tax code. If you pay tax in Wales, your tax codes have the letter C in front of them.

National Insurance

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.

Useful links

There’s more information on letters in your tax code – what they mean 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 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.

Related articles:

Your state pension if you move abroad – will it be frozen and how to claim

5 tax tips if you sell things online

What to do if you’ve received an unexpected tax demand

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