Most people do not need to contact HMRC directly when they retire — the system usually adjusts automatically. But “usually” is not “always”. 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 via your Personal Tax Account or by completing Form P50.
If you claim the State Pension
The Department for Work and Pensions (DWP) notifies HMRC when you start receiving the State Pension. The State Pension is paid gross — no tax is deducted at source.
HMRC then issues a coding notice to your private pension provider, adjusting the PAYE code to collect tax on both the State Pension and any private pension through the private pension’s PAYE system.
When You Do Need to Act
1. If you were self-employed
You must tell HMRC you have ceased trading. Do this by:
- Calling HMRC’s Self Assessment helpline: 0300 200 3310
- Or logging in to your Personal Tax Account and updating your status
HMRC needs to know so they stop issuing Self Assessment returns and penalties. 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
Complete Form P85 if you are moving abroad to retire. This ensures:
- Any refund owed for the year is processed correctly
- HMRC updates your residency status
- UK tax obligations for pension income paid abroad are clarified
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 collected via private pension PAYE code |
| 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 |
| Rental income | Always Self Assessment if over £1,000/year |
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/year — deducting around £5,600 in tax, rather than the £480 correctly due.
To reclaim the overpaid tax, Sarah must submit either:
- Form P55 (if she has taken a partial drawdown and has no other employment)
- Form P53Z (if she has emptied the pension)
- Form P50Z (if she has emptied the pension and is not working)
HMRC aims to process these refunds within 30 days. Alternatively, wait until your next Self Assessment return.
Worked Example: Alan’s Retirement Tax Position
Alan, 68, receives:
- Full new State Pension: £11,502.40/year
- Occupational pension from former employer: £8,000/year
- No other income
Total income: £19,502.40 Personal allowance: £12,570 Taxable income: £6,932.40 Tax at 20%: £1,386.48
HMRC issues a coding notice to Alan’s pension provider for the occupational pension. Because the State Pension (£11,502.40) is close to but under the personal allowance, Alan’s private pension is effectively taxed on the full £6,932.40 difference. His occupational pension PAYE code ensures the correct tax is deducted automatically — no Self Assessment required.
Checking Your Tax Code Is Correct
After retiring, check your P2 coding notice (sent by HMRC each March/April) 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/check-income-tax or call HMRC on 0300 200 3300.
See our State Pension guide, pension tax relief guide, and income tax guide.