State pensioners can avoid paying tax on the Department for Work and Pensions (DWP) state pension - as the triple lock means tens of thousands of pensioners will face a HMRC bill next year.
The state pension is now set to rise by 4.8% in April next year due to the triple lock pledge, which the Labour Party government has committed to. The triple lock promise was brought in by the previous Conservative Party and Liberal Democrats coalition government.
Under the metric, the state pension rises by either September's inflation rate, earnings growth in July, or 2.5% - whichever is highest. It means the state pension could be £22 shy of the HMRC Personal Tax Free Allowance next year.
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But there are ways to reduce your bill to £0.
You can usually take up to 25% of your pension pot tax free when you either move it into drawdown OR take it as any other kind of retirement income.
Any money you take beyond that 25% will be taxed as income. Once your money's in drawdown, any money you access will be included in your annual income for tax purposes.
Most people have a standard personal allowance of £12,570. That first part of your income will probably be tax free. Any income above it will be taxable.
If you are making a withdrawal over the initial tax-free 25% for the first time, it is likely your pension provider will place you on an emergency tax code, which could result in the overpayment of tax. Pension providers are generally required to do this for the first withdrawal.
But a £1 withdrawal could escape it.
ISAs are tax-efficient savings and investment accounts. You can use them to save cash - Cash ISAs - or invest in stocks and shares - Stocks and shares ISAs.
An ISA is a 'wrapper' that shelters your investments or savings from tax - helping your money grow more quickly. The government sets a maximum amount that you can invest in ISAs.
Until 2030 the annual limit is £20,000. You pay no Income Tax on the interest or dividends you earn within an ISA and any profits from investments are free of Capital Gains Tax.
Most UK taxpayers receive tax relief from the government when they contribute to their pensions. For every £100 you pay into your pension HMRC adds a £25 tax top up.
As tax relief is equal to income tax, higher and additional rate taxpayers can claim a further 25% and 31% top up through their Self-Assessment tax returns.
You can receive pension tax relief on any contributions you make, up to 100% of your salary, capped at £60,000 gross for 2025/26.
If you're married or in a civil partnership, one of you can transfer up to £1,260 of your Personal Allowance to the other.
This is just over 10% of the basic £12,570 Personal Allowance for the 2025/26 tax year. (Basic Personal Allowance is the amount of income you don't have to pay tax on).