How is the state pension taxed?
Answered 17 March 2026
Here is a comprehensive answer on how the State Pension is taxed in the UK.
How is the State Pension Taxed?
What the law says
The State Pension is taxable as pension income. Under section 577 ITEPA 2003, the State Pension is chargeable to tax as pension income under Part 9 ITEPA 2003. "State pension" for this purpose means any pension payable under Part 1 of the Pensions Act 2014 or the relevant provisions of the Social Security Contributions and Benefits Act 1992 (SSCBA 1992).
Note that social security pension lump sums are specifically excluded from section 577 and are treated separately.
There is also a partial exemption for any part of the pension attributable to an increase in respect of a child (see section 645 ITEPA 2003).
The taxable amount is the amount of pension accruing in the tax year, which may differ from the amount actually paid in that year. The person receiving (or entitled to receive) the pension is liable to pay tax, whether UK resident or non-resident (though double taxation agreements may provide relief for non-residents).
HMRC guidance / practice
How tax is collected depends on the individual's circumstances:
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State Pension as the only income: If the State Pension is the individual's only income, it is paid without deduction of tax. The recipient is responsible for paying any tax due, and HMRC will write to the individual to tell them how much tax is due and how to pay it.
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State Pension alongside a private pension: Where an individual receives both the State Pension and a private pension, tax on the State Pension is collected via PAYE — the private pension provider deducts tax to cover the amount owed on the State Pension as well. This works by reducing the individual's tax-free personal allowance in their PAYE code to account for the State Pension income.
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State Pension alongside employment income: Similarly, where a person has employment income, the State Pension amount is coded into their PAYE tax code, reducing their tax-free allowance so that the employer deducts the correct amount of tax.
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State Pension lump sums: These are treated as PAYE income and DWP operates a simplified form of PAYE. The individual self-declares their expected highest rate of Income Tax; if they declare basic rate, 20% is withheld at the time of payment. If no declaration is made, basic rate tax is automatically withheld. DWP notifies HMRC at year end of all lump sums paid and tax withheld, and any under/overpayment is corrected — with a tax return issued if further tax is due.
Annual uprating: Each year, HMRC updates the State Pension deduction in an individual's PAYE coding record, either using actual figures supplied by DWP or by applying an agreed percentage increase.
Citation sources
It is not feasible to restrict a PAYE tax code to collect any tax due on a State Pension lump sum. The State Pension lump sum is therefore treated as PAYE income and the Department for Work and Pensions (Pensions Service) will operate a simplified form of PAYE. During the application process for a State Pension lump sum, the Department for Work and Pensions (Pension Service) will ask a person to self-declare their expected highest rate of Income Tax. Assuming they declare the basic rate, then ta
If state pension is present in the customer's code and you add 'est state pension' as a special note. This note should be added where an estimated ‘annual’ amount of state pension is coded in the year of commencement P2 Special note: We have been told you have started to receive the State Pension which is taxable. We estimate that your pension for the full year would be £[deduction value]. We know you will not receive the full amount this year but we have reduced your tax-free amount by £[deduct
Part 9 Pension income Chapter 5 United Kingdom social security pensions United Kingdom social security pensions 577 1 This section applies to— the state pension, graduated retirement benefit, industrial death benefit, widowed mother’s allowance, widowed parent’s allowance, and widow’s pension. 1A But this section does not apply to any social security pension lump sum (within the meaning of section 7 of F(No.2)A 2005). 2 In this section— “ state pension ” means any pension payable under— any prov
If state pension is present in the customer's code and you add 'new state pension' as a special note. This note will also be automatically included where the ‘annual’ amount of state pension is coded in the year of commencement, from an automated P46(DWP) P2 Special note: The Department for Work and Pensions have told us that you now receive State Pension or other state benefits which are taxable. We estimate the full amount for this year would be £[deduction value]. We know you will not receive
This process is carried out each year with the Annual Coding - Main Review or as a separate process after the main review. Where state pension / benefits or employment and support allowance or incapacity benefit is included as a deduction in the individual's CY+1 coding record, it updates the amount of state pension / benefits or employment and support allowance or incapacity benefit for CY+1 in accordance with the pension / benefit details on the DWP file. Where details are not available on the
Sections 578, 640 and 645 ITEPA 2003 The person receiving or entitled to receive the pension is liable to pay tax. This is the case whether they are UK resident or non-resident. Payments to a non-resident may be exempted or relieved from tax under the terms of a double taxation agreement – see EIM75070 for more information. Subject to the following 2 exemptions, the taxable amount is the amount of pension accruing in the tax year. This may be different from the amount actually paid in a tax year