With Christmas over, the season of the tax return is well and truly upon us. Pensioners in particular might be wondering whether they need to do a tax return, particularly if they have recently retired and are new to having a pension income.
Aatif Malik, director at Tax Accountant, has explained where people in this position stand in terms of tax ahead of the deadline for submitting a tax return on January 31, 2025. Many people assume that income from pensions – particularly the State Pension, which is a regular payment from the government to all people of State Pension age, are not taxable. But this isn’t the case, as Aatif explains.
Do pensioners need to file a tax return?
If you receive a private pension and the State Pension as income
Aatif said that if you receive both a private pension and the State Pension, you do not usually have to file a tax return for your pension. This is because your pension provider, in partnership with HMRC, which assigns tax codes to each type of pension, will usually take off any tax you owe via a Pay As You Earn (PAYE) system, and give it to HMRC before they pay you the money.
HMRC will calculate the amount you owe on your State Pension, and adjust the tax code used for your private pension, allowing the tax you owe on both your private and State Pension to be deducted from your private pension. Similarly, if you receive a Workplace Pension and the State Pension, your Workplace Pension Provider will deduct the tax you owe, based on the tax code issued by HMRC, and pay it to HMRC before paying you any money.
If the State Pension is your only income
If the State Pension is your only source of taxable income and you are paid more than your Personal Allowance (£12,570 for the 2023/24 tax year), HMRC will send you a Simple Assessment Tax Bill. HMRC uses the Simple Assessment system to collect tax that cannot be collected through PAYE (as is the case with private or workplace pensions), and where filling in a self-assessment tax return is not required. Note: there may still be situations where you have to file a self-assessment tax return, and HMRC will decide this on a case-by-case basis, depending on your financial circumstances.
Aatif said: “So, if you receive the State Pension as your only source of income and it exceeds the Personal Allowance of £12,570 (for the 2023/24 tax year), you will pay it via the Simple Assessment system. You will be notified by letter about how much you owe and how to pay it. If your State Pension is the same as or lower than your Personal Allowance, you will not usually have to pay tax.
“You can pay your Simple Assessment Tax bill online, via bank transfer, or by cheque, and your letter will tell you the deadline by which you must pay it. You will only be taxed on the amount you earn above £12,570, not on the whole amount.”
If you receive the State Pension and continue to work
Aatif said: “If you continue to work after you have started receiving the State Pension, your employer will usually take off any tax you owe. While tax is not directly deducted from your State Pension, HMRC will issue you with an adjusted tax code. This will allow your employer to deduct the correct amount of tax from all your taxable income via PAYE.
“It’s important to notify HMRC about any additional income you receive while on the State Pension so that they can ensure they issue correct tax codes for you. If you believe your tax code is incorrect, you should contact HMRC.”
If you are self-employed, you must fill in a Self Assessment tax return.
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If you’re doing a paper tax return, you will need to have submitted it by midnight on October 31, 2024.
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If you’re doing an online tax return, you must submit it by midnight on January 31, 2025.
You will use the Self Assessment tax return to submit your overall income, including how much you’ve earned in the last tax year – April 6, 2023, to April 5, 2024 – through self-employment, your State Pension and any money from private or workplace pensions.
If you have other income
If you are a pensioner and you have other income sources beyond that of your pension and any money from continuing employment or self-employment, you may also need to submit a self-assessment tax return.
For example, you must submit a self-assessment tax return if you:
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earn income from renting out a property
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receive money from saving, investments and dividends
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receive interest on savings that exceeds the Personal Allowance
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have had to pay Capital Gains Tax when you sold or disposed of an item whose value has increased.
Aatif said: “The concept of tax returns can feel overwhelming, particularly with pensioners who are adjusting to new sources of income and may have multiple pensions. But knowing where you stand, and following the steps above will help you find clarity as to whether or not you need to submit a self-assessment tax return as a pensioner. Ultimately, every person’s situation can be different, and so it’s a good idea to contact HMRC personally if you have further questions about whether you need to submit a tax return.”