State pension increase 2020: Is the state pension taxable?

State Pension is a regular payment of money which is given to eligible recipients over the state pension age. The amount one receives depends on the amount of national insurance paid throughout their life. But is the state pension taxed?

State pensions will increase this April as part of the Government’s triple lock system which was launched in 2011.

The Government’s triple lock systems is effectively a guarantee for the basic state pension rate increases based on one of three amounts.

This amount is determined by whichever of the following is larger: 2.5 percent, the rate of inflation or the average earnings growth.

State pension payments are paid monthly into your chosen bank account.


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Is state pension taxable?

State pensions are treated as earned income for income tax purposes.

This means you are no longer liable to pay any further National Insurance contributions once you have reached state pension age, but you are subject to income tax.

The amount of income tax you pay depends on your gross income, the total amount of income potentially liable to tax which you receive from all sources, including other pensions and bank or building society interest.

You do not pay any income tax on your gross income up to your personal allowance, which for the tax year 2019 to 2020 is £12,500.

Your Personal Allowance may be larger if you claim Marriage Allowance or Blind Person’s Allowance.

Marriage Allowance lets you transfer £1,250 of your Personal Allowance to your husband, wife or civil partner and subsequently reduces their tax by up to £250 in the tax year.

Blind Person’s Allowance is an extra amount of tax-free allowance which means you can earn more before you start paying Income Tax.

Your personal allowance amount will be smaller if your income is more than £100,000.

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Here are the standard rates and bands for England and Wales 2019 to 2020:

  • Personal Allowance: taxable amount up to £12,500 – 0 percent tax rate
  • Basic rate: taxable amount up to £12,501 to £50,000 – 20 percent tax rate
  • Higher rate: taxable amount up to £50,001 to £150,000 – 40 percent tax rate
  • Additional rate: taxable amount more than £150,000 – 45 percent tax rate

How is your tax paid?

The state pension is paid to you gross, which means before any tax is deducted.

Your pension provider will take off any tax you owe before they pay you and they will also take off any tax you owe on your state pension.

If you get payments from more than one provider, for example, from a workplace pension and a personal pension, HM Revenue and Customs will ask one of your providers to take the tax off your state pension.

At the end of the tax year, you will get a P60 from your pension provider showing how much tax you have paid.

If state pension is your only income, you are responsible for paying any tax you owe.

You should fill in and send a Self Assessment tax return if you owe anything.

If you started getting your pension on or after April 6, 2016, do not send a tax return.

The HMRC will write to tell you what you owe and how to pay.

If you continue to work your employer will take off any tax due from your earnings.

However, if you are self-employed, you must fill in a Self Assessment tax return at the end of the tax year.

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