Do You Need To Pay Tax?

Although you no loner need to pay National Insurance contributions (NICs) when you retire from work, if the income you receive from your pension and other sources is more than your tax-free allowance, then you'll still need to pay income tax.

Before you reach state pension age, HM Revenue & Customs (HMRC) will contact you with information to help you calculate whether or not you will need to pay income tax after you retire. If your taxable income is the same as or less than your tax-free allowance, then no further action will be necessary. However, if your income is greater than your allowance, then you must inform HMRC.

Taxable Income

Your taxable income includes all your pensions (including the State Pension), money you receive from working, interest from bank and building society accounts, income from property, and income from stocks and shares. However, certain income does not class as taxable, such as Premium Bond and National Lottery winnings, Pension Credit, interest from National Savings Certificates, Working Tax Credit or Child Tax Credit and lump sum pension payments.

Your Tax Free Allowance

Everybody is entitled to a Personal Allowance of £6,475 (2009/10); however this allowance is higher if you're aged 65-74 (£9,490) and higher still if you're 75 or over (£9,640). These age-related allowances decrease if you earn over a certain amount (£22,900 in 2009/10) by £1 for every £2 over the income limit. So for example, if you're 76 and have an income of £23,900 (£1,000 over the income limit) your tax free allowance will be reduced by £500 to £9,140. However, no matter how much you earn, you can't get less than the basic allowance.

In addition to your personal allowance, you can claim Blind Person's Allowance if you are certified blind. In the 2009/10 tax year, this amounted to £1,890, and would be added on to any personal and age-related tax-free allowance.