If you’re retired or planning to retire soon, there’s a big change coming that could affect your wallet.
Starting October 2025, HMRC will begin deducting £300 per month from certain pensions and many retirees weren’t expecting this. Whether you’re already drawing your pension or counting down the days to retirement, here’s what you need to know.
Let’s break it all down clearly no jargon, just facts and what you can do about it.
What Is the New HMRC Pension Deduction and Why It Matters
In short: HMRC has confirmed a new monthly deduction of £300 from certain pension payments, starting in October 2025.
This isn’t a random tax grab. It’s tied to underpaid tax on pension income especially for people receiving multiple sources of retirement income, like a State Pension plus a private or workplace pension.
Previously, many pensioners ended up underpaying tax without realising it because PAYE (Pay As You Earn) wasn’t applied correctly to all their incomes. This change is HMRC’s way of recovering unpaid tax more consistently and in real time.
But the impact could be huge for some a sudden drop of £3,600 a year.
When Does the £300 Deduction Start?
HMRC has confirmed that the new deductions will begin in October 2025.
However, you might receive notifications or updates about changes to your tax code as early as April 2025, when the new tax year begins. That’s when HMRC starts recalculating your estimated total income.
So the key months to watch:
| Date | What to Expect |
|---|---|
| April 2025 | Tax codes updated, new notices may arrive |
| October 2025 | £300/month deductions begin for affected people |
| April 2026 | First full year with deduction in place |
It’s worth setting reminders now so you’re not caught off guard.
How the Pension Tax Deduction Works – Explained Simply
Here’s how it plays out.
Let’s say you have:
- A State Pension of £10,600 (the full new State Pension in 2025/26)
- A private pension income of £12,000
- Maybe a small annuity or other savings income of £3,000
That’s a total of £25,600 in annual income. The personal allowance in 2025/26 is expected to remain around £12,570.
So you’d pay tax on £13,030, but if HMRC hasn’t combined your incomes properly under PAYE, you could underpay tax across the year.
To fix this, HMRC will start applying a deduction of up to £300/month from your private or occupational pension to recover the shortfall.
This isn’t a fine or a new tax it’s a catch-up method, but it still hurts if you’re on a tight budget.
Common Mistakes With Pension Tax and How to Avoid Them
Many retirees don’t realise they can be taxed incorrectly not because they did something wrong, but because HMRC doesn’t always see the full picture unless you tell them.
Here are some common mistakes:
- Assuming the State Pension is taxed at source (it isn’t it’s paid gross)
- Not checking tax codes on private pensions
- Failing to report other income like annuities, rental income, or savings interest
- Ignoring letters from HMRC or not updating them when your income changes
How to avoid these pitfalls:
- Use your Personal Tax Account online to check your tax codes
- Contact HMRC if anything looks off
- Keep a simple record of all your income streams
- Speak to a financial adviser if you’re unsure
Best Steps to Protect Your Pension Income
Now that you know what’s coming, here’s how to get ahead of it:
- Check your tax code now: Log in to your HMRC personal tax account to ensure all your pension incomes are listed correctly.
- Notify HMRC of any changes: If your private pension income goes up or down, let them know early.
- Speak to your pension provider: They’ll be applying the deduction ask how it will affect your monthly payments.
- Review your monthly budget: Losing £300 a month may mean adjusting your spending or savings.
- Consider a tax review: Especially if you have multiple pensions or investments, a review can highlight ways to reduce tax legally.
The Latest Updates on Pension Tax Changes in 2025
Here’s what HMRC has confirmed so far:
- The £300/month deduction applies only to pensioners with tax underpayments across multiple income sources
- Not all pensioners will be affected, but estimates suggest hundreds of thousands could see deductions
- HMRC will notify those affected before the change takes effect
- The measure aims to close the tax gap caused by mismatches in PAYE coding and self-assessment delays
Expect more updates between now and spring 2025. We’ll keep watching this story closely.
Conclusion: Key Takeaways for UK Pensioners
The £300 monthly deduction from October 2025 isn’t a new tax but it will feel like one if you’re not prepared.
Here’s the bottom line:
- Check your pension income sources and tax codes now
- Understand how PAYE works (and where it doesn’t)
- Plan ahead for a possible drop in income next year
- Stay informed changes may still evolve before October 2025
Don’t wait until the letters start landing on your doormat. A bit of action now can save a lot of stress later.
FAQ: HMRC Pension Deductions 2025
When does HMRC start the £300 monthly deduction?
From October 2025, though tax codes may be updated earlier in April 2025.
What pensions are affected by the new deduction?
Mostly private or workplace pensions where PAYE applies especially when combined with other income like the State Pension.
Why is HMRC deducting money from my pension?
To collect unpaid income tax from people whose total income exceeds their personal allowance but isn’t taxed correctly through PAYE.
How can I check if I’ll be affected?
Log in to your Personal Tax Account at GOV.UK to review your income sources and current tax codes.
Can I avoid the deduction?
If you ensure all your income is correctly taxed through PAYE or submit a self-assessment with accurate figures, you might reduce or avoid underpayments.
