What income is taxable?
You do not have to pay tax on all of your income. In tax terms, some income is called taxable, which means it forms part of the total income that you have to pay tax on (though sometimes no tax may be due if the income falls within your allowances or is taxed at 0%). Other income is non taxable, not taxable, exempt or tax-free. This means you do not include the income in your total taxable income and therefore you do not have to pay tax on it. This page deals only with income that you get from pensions and related items.
What pensions income is taxable?
The following list includes pensions income that is normally taxable.
- Pension income: from occupational pensions, private pension schemes, personal pension plans or retirement annuity policies. Your pension provider takes off tax under the Pay As You Earn (PAYE) system, before paying you the pension. See: How is tax collected from my occupational and private pensions? Note, however, that if you are receiving a pension that was originally paid to someone else, such as your late spouse or civil partner, this might not be taxable. See our bereavement section for more information.
- Foreign pensions and lump sums paid under overseas pension schemes.
- Industrial death benefit (IDB): pensions payable under this scheme are taxable as pension income. IDB was abolished with effect from 11 April 1988. Pensions already in payment at that date continue to be paid.
- The new state pension can be claimed by those who reach state pension on or after 6 April 2016, who have built up enough qualifying years of NIC. It is fully taxable.
For those who reached state pension age before 6 April 2016, the state pension can be made up of some different elements. Most of these elements are taxable, but increases for dependent children are not taxable.
- State pension lump sums: arising as a result of deferral of a pre-6 April 2016 state pension.
- Purchased life annuities: income element.
Most of these elements are taxable, but increases for dependent children are not taxable.
What pensions income is tax free?
The following list includes income that is normally tax free.
- Child dependency additions paid with state pension or other social security pensions.
- Christmas bonus for pensioners.
- Cold weather payments.
- Pension credit: there is more information on pension credit on GOV.UK. You can also use the pension credit calculator on GOV.UK to see how much pension credit you might get.
- War widow's or dependant's pension.
- Winter fuel payment.
- Gallantry awards: additional pensions or annuities paid to holders of some bravery medals are free from tax – a list can be found in the HMRC manual at EIM75920.
- German and Austrian annuities and pensions for victims of Nazi persecution.
- Certain pension commencement lump sums from UK approved pension schemes usually up to 25% of the capital value.
- Disability pensions of members of the armed forces may be tax free - see HMRC manual EIM75920.
- Certain pensions awarded to an employee because of an injury at work are free of tax. You will need to check the details with your pension payer and/or HMRC – some further HMRC information is available in their manual EIM75080.
- Purchased life annuities: capital element.
Where can I get information on whether other types of income are taxable?
For more information on various types of taxable and tax-free income, you may find these sections of our website helpful:
- Tax basics: what income is taxable?
- Self-employment: how do I work out my taxable profits?
- Employment: what income is taxable?
- Tax credits and benefits: state benefits