EIM75700 - The taxation of pension income: social security pensions

Which payments are taxable as pension income
State Pension
Other social security payments taxed as pension income
Taxable amount

Which payments are taxable as pension income

Section 577 ITEPA 2003

The following types of UK social security payments are chargeable to tax as pension income:

  • State Pension
  • Graduated Retirement Benefit
  • Industrial Death Benefit
  • Widowed Mother’s Allowance
  • Widowed Parent’s Allowance
  • Widow’s Pension.

Social security pension lump sums are not within the scope of section 577. See EIM75750 for guidance on the tax treatment of these payments.

State Pension

The rules for how an individual becomes entitled to State Pension and the amounts payable depend on when they reach State Pension age. 

Reaching State Pension age on or after 6 April 2016

Individuals who reach State Pension age on or after 6 April 2016 may receive the new State Pension. The amount they may receive is based on their National Insurance record.

Reaching State Pension age before 6 April 2016

Such individuals may be entitled to the basic State Pension and an Additional State Pension. The amount payable under the old rules may be affected by several factors that can increase the amount due, such as:

  • age addition
  • increase for dependants.

Payment of both the new State Pension and the State Pension paid under the old rules can be deferred.

GOV.UK provides detailed guidance about entitlement to the State Pension and how to claim it.

Other social security payments taxed as pension income

Graduated Retirement Benefit

Between 1961 and 1975 individuals could pay contributions into the Graduated Retirement Benefit. The benefits paid are based on the amount of contributions paid, which are used to buy ‘units’. Like the State Pension, it can be deferred. This is not payable to anyone who reached State Pension age after 5 April 2016.

Industrial Death Benefit

Industrial Death Benefit is a pension payable to dependants of individuals who died because of an accident at work or from a prescribed industrial disease before 11 April 1988. It has not been possible to make a new claim for this benefit since 5 December 2012. Payments continue for valid claims made before that date.

Widowed Parent’s Allowance

This allowance is payable under section 39A of the Social Security Contributions and Benefits Act 1992 only if the individual’s husband, wife, or civil partner died before 6 April 2017. It has been replaced by Bereavement Support Payment. GOV.UK has more information about Widowed Parent’s Allowance.

Widowed Mother’s Allowance

Payable under section 37 of the Social Security Contributions and Benefits Act 1992 if an individual’s husband died before 9 April 2001. It was replaced by Widowed Parent’s Allowance but continues to be paid to claimants receiving that benefit before 9 April 2001.

Widow’s Pension

This is payable under section 38 of the Social Security Contributions and Benefits Act 1992. It was replaced by Bereavement Allowance for new claimants on or after 9 April 2001, but widows in receipt of Widow's Pension before that date continue to receive Widow's Pension.

Taxable amount

Sections 578, 640 and 645 ITEPA 2003

The person receiving or entitled to receive the pension is liable to pay tax. This is the case whether they are UK resident or non-resident. Payments to a non-resident may be exempted or relieved from tax under the terms of a double taxation agreement – see EIM75070 for more information.

Subject to the following 2 exemptions, the taxable amount is the amount of pension accruing in the tax year. This may be different from the amount actually paid in a tax year. 

If the State Pension is the individual’s only income it will be paid to the individual without deduction of tax and the recipient is responsible for paying any tax due. HMRC will write to the individual to tell them how much tax is due and how to pay it. 

Individuals who receive the State Pension and a private pension will have tax deducted by their pension provider to include tax owed on the State Pension.

Child dependency increases

Section 645 ITEPA 2003

If the amount of pension or allowance payable has been increased in respect of a child, the amount of that increase is exempt from Income Tax.

War widow’s pension

Section 640 ITEPA 2003

Where someone receiving war widow’s pension has that pension reduced because they are also receiving a social security pension or allowance, part or all of that pension or allowance may be tax-free. The amount that otherwise would have been paid as war widow’s pension is exempt from tax.