In the 2025/26 tax year my pension will be about £300 over the personal allowance threshold for paying tax.
Will HMRC contact me about what I owe or does this happen any other way. I would be grateful if you could give some advice.
Steve Webb replies: With every passing year, more and more pensioners are being dragged into the tax net for the first time.
This is because the tax-free allowance has been repeatedly frozen whilst pension rates continue to increase. But the way in which that tax is collected depends on your individual situation.
The simplest scenario is if your total taxable income includes not just your state pension but also another source of income to which a ‘tax code’ is applied.
Typical examples would include a company pension, a private pension or a wage.
The purpose of a tax code is to enable HMRC to collect the correct amount of tax by the end of the year without you needing to take any action.
Let me explain how this works. The standard tax free allowance is currently £12,570 per year.
If your state pension is below this figure, but you go over the threshold because of a private pension, then your private pension provider will be notified.
It will be sent a ‘tax code’ for the £12,570 figure minus your state pension.
This figure reflects the remaining amount of tax free income that you can draw, once account has been taken of your state pension.
The pension provider will then work out how much income tax to deduct using the tax code. If you have a job, your employer would do the same.
This should mean that by the end of the year, full account has been taken of your state and private pensions and you have paid the right amount of tax. No further action is required on your part.
But what happens if you do not have a source of income on which a tax code can be used?
In this case it would be absurd if you had to fill in a full self-assessment tax return – and do so every year for the rest of your life – just to collect a few pounds in tax.
So HMRC invented something called ‘simple assessment’ to cover taxpayers who don’t have a tax code, but who have simple tax affairs.
This could mean, for example, just a state pension and perhaps some bank interest. There’s more details here: Simple Assessment guide for pensioners.
In this situation, HMRC already knows all that it needs to know. The Department for Work and Pensions tells them about your state pension and your bank should notify them of your bank interest.
At the end of the tax year HMRC will use this information to work out your tax bill and send you a tax demand in the post, and tell you how long you have to pay.
If you get this demand in the summer, you would typically have until the following January to pay.
In your case, if you are £300 over the tax threshold for 2025/26, your tax bill is likely to be around £60.
You will not get the ‘simple assessment’ demand for this amount until this summer, but you may want to set aside that £60 in advance.
You may have heard in the November 2025 Budget that the Government is planning to exempt some pensioners from income tax if they are just over the tax threshold.
This policy will apply from 2027/28 onwards.
Although we don’t know exactly how this will work, they have said that this concession will only apply where someone’s entire taxable income comes from the standard flat rate of the new state pension, or the old basic pension ‘with no increments’.
You have told me you have other income apart from your state pension, and therefore you will continue to receive a simple assessment demand each year from now on.
If the tax threshold remains frozen, the size of that demand will rise each year.
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