Retirement and tax

An end to work, not an end to tax

Tax does not disappear once you start the retirement process. While your income is likely to fall when you cease work completely, you will still have an income tax liability if your pension and other income exceed your available allowances.

In some respects, tax can become more complex in retirement than when you are in work. Before retirement normally only one source of earnings is taxed, whereas in retirement you may receive pensions from several different sources, including the state, former employers’ pension schemes and personal pensions. To complicate matters, not all pension income is taxed in the same way.

With the personal allowance of £11,850 in tax year 2018/19, rising to £12,500 in 2019/20, it does not take much income over and above the state pension to bring you into the tax net. There are no longer any age-related personal allowances and the maximum single-tier state pension is £8,546 in 2018/19, rising to £8,767 in 2019/20.