Most people will still need to pay tax when they retire. So you will continue to get an annual tax code and pay tax on any income you earn over your personal allowance. The standard personal allowance for the tax year 2020/21 is £12500.
What counts as an income?
Income includes things like:
- annuity payments.
- payments from income drawdown.
- income from employment.
- income from investments.
- income from any rental property.
How is tax paid on money you take from your pension pot?
You can take a lump sum of up to 25% of your pension pot, tax-free. Once you have had your tax-free lump sum, any money taken from your pension pot is added to any other income you get in the tax year you take it. This includes paid work, taxable income from additional pension pots and your State Pension.If, at the end of the tax year, you have either under or overpaid on tax, it’s your responsibility to sort it out with HM Revenue and Customs (HMRC).
If you have an annuity, HMRC usually gives your pension provider your tax code. Your provider will then take off the tax you need to pay from your payments before they are paid to you.
The value of tax benefits depend on your individual circumstances. Your circumstances and tax rules may change in the future.