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Income tax on your pension

Age-related tax allowance

By Ian Robinson

Article 3 of 3

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Age-related tax allowance

Older people used to be eligible for a higher tax-free allowance. That's no longer the case - but there are still valuable tax breaks to be had.

You can earn a decent amount of money - from your salary or pension - before you pay any tax.

Individuals have an annual personal allowance, which is an amount of income they can keep tax free. 

For most people it will be £11,500 for 2017-18 (£11,000 for 2016-17). Until 2016, older people were eligible for a larger tax-free allowance but this is no longer the case. 

However, there are still valuable tax breaks for older people. This guide explains what they are. 

  • Get a head start on your 2016-17 tax return with the Which? tax calculator. Tot up your tax bill, get tips on where to save and submit your return direct to HMRC with Which?.

National Insurance in retirement

When you reach state pension age (currently 63 and nine months for women and 65 for men, but rising to 66 for both men and women by April 2018), you no longer have to pay National Insurance contributions.

This means employees who work past state pension age will be able to keep an extra 12p in the pound on earnings between £8,160 and £45,000 in 2017-18, and 2p in the pound on higher earnings. 

Self-employed workers will keep an extra 9p in the pound on profits between £8,160 and £45,000, and 2% on higher amounts. 

Employees will stop paying national insurance contributions as soon as they reach state pension age. Self employed workers will need to keep paying until the end of the tax year in which they reach state pension age.  

Find out more: State pension explained - learn about the state pension in our guide 

If you continue working after state pension age

If you continue working after state pension age, to stop National Insurance being deducted you'll need to prove your age to your employer, either by producing a birth certificate or passport. 

Exceptionally, if you are unable to provide these documents, write to: HM Revenue and Customs, National Insurance Contributions Office, Contributor Caseworker, Longbenton, Newcastle upon Tyne, NE98 1ZZ.

If you are self-employed

If you are self-employed, tick the relevant box on the self-employment pages of the self-assessment tax return to claim exemption from Class 4 National Insurance contributions (NICs). This applies to the end of the tax year in which you reach state pension age, so you may need to carry on paying NICs for some months after your birthday.

Class 2 weekly self-employment contributions should cease automatically, from the Saturday following the date on which you reach state retirement age, but you should check your statements from HMRC to make sure.

  • Last updated: April 2017
  • Updated by: Tom Wilson
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