Annuities explained
Annuities Explained – What Are Annuities? | Age UK An annuity converts your savings into an annual pension, giving...
If your income is over a certain amount, you'll have to pay Income Tax on it. Not all income is taxable, and you may be able to claim allowances or reliefs to reduce the amount of tax you pay.
Not all income counts towards Income Tax. You may have to pay tax on:
You do not have to pay tax on:
Get in touch with Tax Help for Older People or HMRC for further information about which types of income are taxable and non-taxable.
We all have a personal tax-free allowance representing the amount of income you can receive before paying tax. For 2024/25, the Standard Personal Allowance is £12,570. This means that you can earn or receive up to £12,570 and not pay any tax.
Your Personal Allowance may be lower than this in certain circumstances – for example, if your income is more than £100,000. Some people are entitled to other tax-free allowances as well, such as Married Couple’s Allowance and Blind Person’s Allowance.
You pay tax on your pension if your total annual income adds up to more than your Personal Allowance. For 2024/2025, this means you pay tax on your pension if your income is over £12,570.
As a general rule of thumb, you can withdraw up to 25% of your pension pot tax free. Any other withdrawals you make will be subject to income tax at your current tax rate.
It’s important to note that if you withdraw money from your pension pot it could put you into a higher tax band so you may have to pay more tax.
Speak to your pension provider or HMRC for more information.
The starting rate for savings is an additional £5,000 added to your Standard Personal Allowance, which for 2024/25 is £12,570. This means that you could earn up to £5,000 in interest without paying tax. However, each £1 that you earn above the Standard Personal Allowance reduces your starting rate for savings by £1. This means that if your income, for example from wages or a pension, is more than £17,570 in total, you don't qualify for a starting rate for savings.
You may also get a fixed tax-free allowance for savings interest of £1,000 for basic-rate taxpayers and £500 for higher-rate taxpayers. Savings in tax-free accounts like Individual Savings Accounts (ISAs) don't count towards this allowance. If you go over your allowance and you're employed or you get a pension, HMRC can change your tax code so that you pay the tax automatically.
If you normally complete a self-assessment tax return, report the interest earned on savings there. Alternatively, your bank or building society will tell HMRC how much interest you received at the end of the year.
Find out more about how tax on savings works on MoneyHelper's website
As we get older, we might have lots of different sources of incomes – such as part-time work, one or more pension pots, and maybe some savings too.
If this applies to you, make sure you let HMRC know this so that you pay the right amount of tax against each income.
We offer support through our free advice line on 0800 678 1602. Lines are open 8am-7pm, 365 days a year. We also have specialist advisers at over 120 local Age UKs.
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