How to avoid paying tax in retirement (legally)

W

hen you think of retirement, images of sandy beaches, green golf courses or long lunches may spring to mind. Chances are that the taxman rarely features.

Yet a growing number of people are paying income tax in retirement. Some 11 per cent of those aged 75 and over paid tax in 2022-23, according to the latest HM Revenue & Customs figures, up from 7 per cent in 2011-12. In total, 7.13 million people of pension age paid tax that year.

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Pensioners now account for almost 21 per cent of taxpayers and 7 per cent of the total tax take. At £11,973, the full new state pension is on track to exceed the £12,570 personal allowance (the amount of income you can have each year without paying tax) by 2027 — and those planning their retirement must also contend with less generous allowances for capital gains tax and dividends, and a growing inheritance tax net.