HMRC issues tax warning to UK households and explains 'only' time you'll pay

HMRC has issued a tax update on state pensions - warning UK households of the "only time you will pay". HMRC cautioned state pensioners about transferring funds from private pensions to other investments as the Cost of Living crisis continues.

A Twitter/X user said: "She has applied for the marriage allowance to be allocated back to her. (April 2025) How can we prevent further tax bills when accessing private pension and/or other saving schemes?" They said: "If money was removed from the private pension of either individual to be invested elsewhere, e.g. Premium Bonds, what rules are there regarding tax demands?"

"Take out £10,000, pay 20 per cent reinvest and pay 20 per cent again on any dividends. It seems the tax is applied multiple times." HMRC responded with: "You only pay income tax if your taxable income - including your private pension and state pension - is more than your tax-free allowances (the amount of income you're allowed before you pay tax)."

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You pay tax if your total annual income adds up to more than your Personal Allowance. Your total income could include the State Pension you get (either the basic State Pension or the new State Pension), Additional State Pension and a private pension (workplace or personal).

It also includes earnings from employment or self-employment, any taxable benefits you get and any other income, such as money from investments, property or savings. You may have to pay Income Tax at a higher rate if you take a large amount from a private pension. You may also owe extra tax at the end of the tax year.

If you take some or all of your pension as a lump sum y ou’ll pay Income Tax on any part of the lump sum that goes above either your lump sum allowance or your lump sum and death benefit allowance.