Work may stop in retirement – for some people, at least – but your tax in retirement does not. If your income totals more than your personal allowance, you may still be liable to tax.
Occupational pension benefits from an employer are generally paid with tax deducted at source, but other income – from private pension plans, for example – is not and will affect your tax in retirement. State benefits, including the basic state pension, are also paid with no tax deducted.
If you are potentially liable to tax not being deducted at source, you should complete a self-assessment tax return.
This may be the first time you have had to do so, or you may have been filing returns for several years, but if in doubt, ask HMRC for confirmation that you need to complete the form.
PERSONAL ALLOWANCES IN RETIREMENT
In 2015-16, older people may be entitled to claim a higher personal allowance – this is the amount of income you are allowed to receive before any tax is due. In 2016-17, there will not be any extra allowance.
In 2015-16, the personal allowance for those born after
- 5th April 1938 is £10,600,
- rising to £10,660 for those born before 6th April 1938.
However, pensioners with income above £27,700 a year don’t get the full higher personal allowance. The extra reduces by £1 for every £2 of income you have above this threshold until it gets to the standard £10,600 level.
For those pensioners with an income above £100,000, this standard allowance is also subject to a £1 for £2 reduction, so if you earn enough, you may find your personal allowance is nil.
For older pensioners, the need to apply the reduced personal allowance is the trigger for them to receive a self-assessment tax return. Those with simpler financial affairs may receive a shorter version requiring fewer details.