HMRC is told about some things automatically when you retire, but not everything. Knowing which situations require action can save you from an unexpected tax bill or penalty. Here is the full picture for 2026/27.
What Happens Automatically When You Retire
If you were employed (PAYE)
Your employer submits a Final Full Payment Submission (FPS) to HMRC when your employment ends. HMRC is updated automatically — you do not need to do anything.
If you are entitled to a tax refund for the portion of the tax year when you were unemployed (because your annual allowances have not been fully used), you can claim this by completing Form P50 online, once you have had your final pay.
If you claim the State Pension
The Department for Work and Pensions (DWP) passes your State Pension details to HMRC, but GOV.UK still says you must tell HMRC when you start getting a taxable benefit such as the State Pension. The State Pension is paid gross: no tax is deducted at source.
HMRC will usually change your tax code so the tax due on your State Pension is collected from your wages or private pension. If it cannot collect it that way, it may send you a Simple Assessment bill.
When You Do Need to Act
1. If you were self-employed
You must tell HMRC you have ceased trading. Do this by:
- Using HMRC’s online service to tell HMRC you’ve stopped self-employment (you will need to sign in)
- Or, if you cannot use the online service, calling the Self Assessment helpline on 0300 200 3310 or writing to HMRC
HMRC needs to know so it can stop expecting returns from you, and you may have to pay a penalty if you do not tell it early enough. You will still need to file a final return for the tax year in which you stopped trading.
2. If you have rental income or investment income
If you receive rental income, or significant investment income above the dividend or savings allowances, you may need to remain in Self Assessment even in retirement. Check with HMRC if unsure.
3. If you are leaving the UK
Tell HMRC if you are moving abroad to live there permanently: complete Form P85, or the residence section (SA109) of your Self Assessment return if you usually file one. Telling HMRC means it can:
- Work out whether you are due a refund for the tax year you leave
- Advise whether you need to pay tax in more than one country
- Make sure you pay the right amount of tax on your pension if you retire abroad
How Tax Is Collected in Retirement
Understanding how HMRC collects tax in retirement helps you spot errors in your coding notice.
| Income source | How tax is collected |
|---|---|
| State Pension | Paid gross by DWP; tax usually collected by changing the tax code on a job or private pension, or by a Simple Assessment bill |
| Occupational pension | PAYE — employer/trustee deducts at source |
| Personal pension / SIPP drawdown | PAYE — provider deducts at source (initial payment often taxed on emergency basis — see below) |
| Savings interest | Within Personal Savings Allowance: tax-free; excess: via Self Assessment or coding |
| Dividend income | Within £500 dividend allowance: tax-free; above: via Self Assessment, or via your tax code if your dividends are £10,000 or less and you do not send a return |
| Rental income | First £1,000 tax-free (property allowance); contact HMRC if more, up to £2,500; Self Assessment return if over £2,500 after expenses or £10,000 before expenses |
The Emergency Tax Trap — Pension Withdrawals
When you take a flexible drawdown payment from a pension for the first time, the pension provider often taxes it on an emergency basis — as if you would receive that amount every month for the rest of the year.
Example: Sarah takes a £15,000 one-off drawdown payment from her SIPP. The provider taxes it as if she is earning £180,000 a year, deducting around £5,100 in tax, rather than the £486 due if the whole payment is taxable and she has no other income.
To reclaim the overpaid tax, Sarah can claim using one of these forms:
- Form P55 (if she has taken only part of the pension pot)
- Form P53Z (if she has emptied the pension and has other employment or other pensions)
- Form P50Z (if she has emptied the pension and has no other work or pension income, apart from the State Pension)
HMRC works out the repayment and checks again at the end of the tax year. If you make no claim, HMRC reviews the position after the end of the tax year and sends a tax calculation showing any over or underpayment.
Worked Example: Alan’s Retirement Tax Position
Alan, 68, receives:
- Full new State Pension: £12,547.60/year
- Occupational pension from former employer: £8,000/year
- No other income
Total income: £20,547.60 Personal allowance: £12,570 Taxable income: £7,977.60 Tax at 20% (England, Wales and Northern Ireland rates): £1,595.52
HMRC will usually issue a coding notice to Alan’s pension provider for the occupational pension, so the tax due on his State Pension is collected from that pension. Because the State Pension (£12,547.60) is close to but under the personal allowance, Alan’s occupational pension is taxed on £7,977.60 of the £8,000, because only £22.40 of his personal allowance is left. His tax is collected through the PAYE code on his occupational pension, so he would not normally need to send a Self Assessment return.
Checking Your Tax Code Is Correct
After retiring, check your P2 coding notice (the letter HMRC sends when your code changes) to confirm:
- The State Pension figure is correct
- All income sources are correctly reflected
- No employment income from a previous job is still included
To query or update your tax code, log in to your Personal Tax Account at gov.uk/personal-tax-account or call HMRC on 0300 200 3300.
See our State Pension guide, pension tax relief guide, and income tax guide.