State Pension and Tax Thresholds

When you reach retirement age and start receiving the state pension, you might expect it to be tax-free — after all, you’ve worked hard for it. However, state pension is treated as taxable income in the UK, and understanding how tax thresholds affect your retirement income is key to avoiding surprises.

In this guide, we break down how state pension interacts with tax rules, what thresholds apply, and how to manage your income to stay within tax-free limits.

What Is the State Pension?

The state pension is a regular payment from the UK government that you receive once you reach the State Pension age, which is currently 66 (rising to 67 in the coming years). The new full State Pension is £221.20 per week for the 2024/25 tax year, amounting to around £11,502.40 annually.

While it’s a guaranteed source of income, it’s not exempt from tax.

Is the State Pension Taxable?

Yes, state pension counts as taxable income, even though no tax is deducted at source. This means HMRC doesn’t take tax from your state pension before you receive it — but they still expect you to pay tax on it if your total income goes above the Personal Allowance.

The Personal Allowance for most people in the 2024/25 tax year is £12,570. So, if your only income is the state pension, you might stay just below the threshold and pay no income tax.

However, if you receive additional income (like a private pension, part-time work, or dividends), this can push you over the allowance, meaning you’ll owe tax on the combined total.

For help estimating how much tax you’ll pay, try our Pension Tax Calculator, which factors in your total income and age.

How Is Tax Collected on the State Pension?

Since HMRC doesn’t deduct tax directly from your state pension, they usually adjust the tax code on your private pension or other taxable income to collect what’s due.

For example, if you have a workplace pension, HMRC may reduce your tax code so that your pension provider deducts extra tax on your behalf to cover the state pension liability.

State Pension + Other Income = Tax Liability

Let’s look at an example to understand how the thresholds work:

  • State Pension: £11,502.40
  • Private Pension: £4,000
  • Total Income: £15,502.40

In this case, the total income exceeds the Personal Allowance by £2,932.40 — so you’ll be taxed at 20% on that excess, leading to a tax bill of £586.48.

This is why it’s important to monitor all your income sources, not just your state pension.

You can learn how to optimize your withdrawals in our article: Can You Avoid Paying Taxes on Pension Income?.

Can You Reduce the Tax on Your State Pension?

Yes — here are a few ways to reduce your overall tax liability:

  • Use Marriage Allowance: Transfer unused personal allowance to your spouse if eligible
  • Split pension income (if available) with your partner
  • Defer your state pension to delay tax and possibly increase payments
  • Withdraw from ISAs or other tax-free accounts to stay under the threshold

Learn how to set up tax-smart pension payments in our guide on How to Set Up Tax Withholding on Pension Payments.

A Quick Word on International Pensions

If you’re living abroad or receive a foreign pension, the rules for taxation may change, especially if there’s a tax treaty between the UK and the other country. In some cases, your foreign pension may also affect your tax position in the UK.

You can review current UK tax treaties on the official government website.

Conclusion

While the state pension is taxable, you can legally avoid paying tax on it — but only if your total income stays below the Personal Allowance. Understanding the tax thresholds and managing your pension income effectively is essential for minimizing your tax bill in retirement.

Check your income levels and thresholds using our free pension tax calculator to make better decisions about your financial future.