Find out everything you need to know about paying tax when you start withdrawing your pension.
How much tax you pay when you access your pension depends on the way you withdraw your savings and your own personal circumstances. In this article, we'll look at what you need to know about paying tax when you start withdrawing your pension.
The way you withdraw from your pension changes how much tax you'll need to pay. We've outlined how this works for a few pension withdrawal options below. For a complete breakdown, check out our guide to pension tax.
25% of your pension pot can be taken out tax-free.
Please be wary of any companies that offer to help you access your pension before your retirement age. Accessing your savings before your retirement date will cause a large tax charge from HMRC.
Your provider will deduct the tax from your payments and pay it to HMRC. When they process your request, HMRC might be able to provide them with an exact tax code, or they may have to use a temporary tax code to make the payment. They’ll also provide you with full details of the payment and what has been sent to HMRC.
If you’re receiving regular payments from drawdown or an annuity then they’ll be made on a PAYE basis, a bit like how you receive payments from an employer. You’ll get a P60 each year confirming how much you’ve been paid and what tax has been deducted.
The amount you receive as part of your State pension will not have any deductions taken for tax, but the income you receive does count towards your overall annual allowance, and so will reduce the amount you can take from your other pensions before you’re liable for income tax.