22 September 2026 – written by Steffen Kemmerzehl – Friendly Assist Accountancy – The Accounting Hub
Pensions are usually built up over many years, but the tax consequences can become important very quickly when you start taking the money.
You may have a State Pension, one or more workplace pensions, a personal pension or even a pension from another country. You may also still be working, running your own business or completing a Self Assessment tax return. Understanding how these different sources of income fit together can help you avoid an unexpected tax bill or discovering a problem after you have already taken a pension payment.
Is my pension taxable?
The answer depends on the type of pension and how you receive the money.
Your State Pension is taxable income, even though Income Tax is not normally deducted directly from the payment. It is considered alongside your other taxable income when your overall tax position is worked out.
Private and workplace pensions can also produce taxable income when you start taking them. Depending on the pension arrangement and how you take the benefits, some money may be available tax free while other amounts are taxable. This is why the amount you actually receive from a pension is not necessarily the same as the amount you can spend without considering tax. If you are approaching retirement and have several different sources of income, it can be worth looking at the whole picture before you start taking money from your pension.
Pension tax: the questions people often ask
Is my pension taxable?
Usually, yes. Most pension income is taxable as part of your overall income, although some pension payments can be tax free.
How much tax will I pay on my pension?
This depends on your total taxable income for the tax year, not simply on how much pension you receive. Your employment income, State Pension, private pensions and other taxable income may all need to be considered together.
Do I pay tax when I take money from my pension?
Potentially. The tax treatment depends on how you take the money and the type of pension payment involved. A withdrawal can also affect your overall tax position for the year.
Is a pension lump sum tax free?
Some pension lump sums can be taken tax free, but not every lump sum is automatically tax free. The rules depend on the type of payment and your pension arrangements.
Is the State Pension taxable?
Yes, the State Pension is normally taxable income. Tax is generally collected through other income or your tax code rather than being deducted directly from your State Pension.
The important point is that pension tax cannot always be considered separately from the rest of your finances. If you are still working, have several pension pots, receive other income or have an overseas pension, your overall tax position may need to be considered before you take money from your pension.
Could taking a pension lump sum increase my tax bill?
It can. Taking a large pension withdrawal in one tax year can increase your taxable income for that year. Depending on your circumstances, this could mean that some of your income is taxed at a higher rate. There can also be situations where the pension provider initially deducts more tax than you ultimately owe.
If you are considering taking a substantial lump sum, it is therefore worth considering the tax position before making the withdrawal. A calculation based on your expected income can sometimes be more useful than simply looking at the tax deducted from the pension payment.
What if I already complete Self Assessment?
This is particularly important for self employed people, company directors and anyone with other sources of taxable income. If you already complete a Self Assessment tax return, pension income may need to be included depending on the circumstances.
For example, you might have income from self employment, a company, employment, investments and a pension during the same tax year. Looking at each source separately does not necessarily give you the correct overall tax position. If you are unsure whether a pension payment needs to be reported, it is better to check rather than assume.
What if I am still working?
Starting to receive a pension does not necessarily mean that you have stopped working. You may continue working while receiving your State Pension or private pension income. You might also continue running a business or working as a contractor. Your employment or business income and pension income can therefore interact within the same tax year.
For company directors, there can also be questions about pension contributions made personally or by the company. If you are still working and planning to access a pension, looking at your expected income for the tax year can help you understand the potential tax consequences before you make a decision.
What if I have worked abroad?
This is an area where pension tax can become considerably more complicated. You might have spent part of your career outside the UK and have a pension from another country. You might now live in the UK, or you might be planning to leave the UK and take your pension with you.
The UK tax treatment of an overseas pension can depend on the type of pension, where it is based, where you are tax resident and whether a double taxation agreement applies. Your State Pension and your tax residence are also separate issues. For someone who has moved between countries, simply assuming that an overseas pension is taxed in the same way as a UK pension can lead to the wrong conclusion.
HMRC provides specific guidance for people receiving pensions while living abroad.
HMRC: Tax when you get a pension and live abroad
What if I have several pension pots?
Changing jobs can leave you with several different pension arrangements. You might have pensions from previous employers, a current workplace pension and a personal pension. You may also have an overseas pension from a previous period of working abroad. Before consolidating pensions or taking money from them, it is important to understand what each arrangement actually provides.
Some older pension arrangements can have particular benefits or terms, so consolidation should not be treated as simply moving everything into one account. An accountant can help with the tax side of the decision, but investment and pension product decisions may require advice from a regulated financial adviser.
How does pension tax relief work?
Pension contributions can benefit from tax relief, subject to the rules that apply to you. For someone paying higher rate Income Tax, understanding the available tax relief can be particularly important.
There are also limits on pension saving that can benefit from tax advantages. The standard annual allowance for 2026/27 is £60,000, although other rules can apply depending on your circumstances. If you are making substantial pension contributions, particularly through a company, it is worth checking the tax treatment rather than assuming that every contribution will receive the same treatment.
What is changing with pensions and Inheritance Tax?
There is another reason pension planning is particularly relevant at the moment.
From 6 April 2027, the government intends to bring most unused pension funds and certain pension death benefits into the scope of Inheritance Tax. This is an important change for people with substantial pension savings and those considering how their pension fits into their wider estate. The rules are detailed and the practical consequences will depend on individual circumstances. If you have significant pension savings, it is worth reviewing current information rather than relying on older pension planning advice.
HMRC: Inheritance Tax on pensions technical note
Should I speak to an accountant before taking my pension?
Not everyone needs professional advice. If you simply want to check your State Pension forecast, HMRC provides a free service and MoneyHelper provides useful general pension guidance. Professional tax advice can become more useful when your pension forms part of a wider or unusual tax situation.
For example, you may want to check your position if:
- • You are taking a large pension lump sum
- • You already complete Self Assessment
- • You are self employed
- • You are a company director
- • You have several sources of taxable income
- • You have an overseas pension
- • You have lived or worked outside the UK
- • You are moving to or from the UK
- • You have been charged tax on a pension withdrawal and think it may be incorrect
- • You have substantial pension savings and are concerned about the changes to Inheritance Tax
In these situations, the useful question is often not simply “How much tax will I pay?” It may be “What will my overall tax position look like if I do this?”
How Friendly Assist Accountancy can help
Friendly Assist Accountancy provides practical UK tax advice for individuals, self employed people and company directors. We can help with the tax side of pension income and withdrawals, including Self Assessment and situations involving overseas income or cross border tax issues. We do not provide regulated investment advice or tell you which pension or investment product to choose. Instead, our role is to help you understand the UK tax consequences of your circumstances.
If you are unsure whether your pension situation needs professional advice, you can contact us and explain what you are considering. We can then look at the circumstances and let you know what information would be needed and whether there is a tax issue worth reviewing.
I’m Steffen Kemmerzehl, an AAT Licensed Accountant at Friendly Assist Accountancy. I work with UK and international clients on tax residence, overseas income, pensions, property and other cross-border UK tax matters.
Please get in touch if you’re interested in arranging an appointment.
Further information
HMRC: Tax when you get a pension
This article provides general information and is not a substitute for individual tax, financial or legal advice. Pension and tax rules can change, and the rules applying to you depend on your individual circumstances.