State Pension: How is my State Pension taxed? | Personal Finance | Finance

Providing you have made enough National Insurance contributions, once you reach retirement age in the UK you are entitled to receive your State Pension. To claim the State Pension you do not have to stop working, it will mean however that you don’t pay National Insurance contributions anymore. But any income you earn over the Personal Allowance, including the State Pension, is subject to tax.

What is a Personal Allowance?

The Personal Allowance is the amount every year you can earn which isn’t subject to income tax.

The standard Personal Allowance is £12,500, meaning you don’t have to pay income tax on this amount.

Depending on certain factors, your Personal Allowance may be bigger or smaller than this figure.

How much tax you pay in a year depends on how much of your income is above your Personal Allowance threshold.

READ MORE: State pension: How a NI record can be build up without working

The rate of tax you pay depends on how high your taxable income is.

Up to the Personal Allowance of £12,500, the rate of tax is zero percent.

You pay the basic rate of tax on taxable income between £12,501 and £50,000, which is 20 percent.

The higher rate of tax applies to taxable income between £50,001 to £150,000, and is 40 percent.

The additional rate of 45 percent applies to income above £150,000.

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