Question 1

Do you pay income tax on the state pension?

Accepted Answer

Yes. The state pension is taxable income. However, HMRC does not deduct tax from it at source. Instead, if you have other income such as a private pension or employment, HMRC adjusts your PAYE tax code so the tax owed on your state pension is collected through those other sources. If you have no other PAYE income, you may need to file a Self Assessment tax return.

Question 2

How much of my personal allowance does the state pension use?

Accepted Answer

The full new state pension for 2025/26 is £11,502 per year. Since the personal allowance is £12,570, the state pension uses £11,502 of it — leaving only £1,068 tax-free for any other income. This means almost every pound of private pension drawdown or other income you receive on top of the state pension will be taxed at your marginal rate.

Question 3

How is private pension drawdown taxed?

Accepted Answer

Private pension drawdown income is treated as earned income and taxed at your marginal rate. It is added on top of your other taxable income (including the state pension) for the tax year. The first 25% of your pension pot can usually be taken tax-free, but regular drawdown payments from the remaining 75% are fully taxable. The tax rate depends on your total income — 20% basic, 40% higher, or 45% additional rate.

Question 4

What happens to the personal allowance if my income exceeds £100,000?

Accepted Answer

If your total taxable income exceeds £100,000, your personal allowance is reduced by £1 for every £2 of income above that threshold. This means the personal allowance is fully lost at £125,140. The effective marginal tax rate in this taper zone is 60% (40% income tax plus 20% from losing the personal allowance), making it one of the highest marginal rates in the UK tax system.

What income tax will you pay in retirement?