Armed Forces Pension Tax Calculator

How an armed forces pension is taxed

An armed forces pension is taxable income. It is taxed through PAYE using a tax code, in the same way as a salary, and Equiniti Paymaster, which pays AFPS pensions, deducts the tax before the money reaches you. Early Departure Payment income is taxed the same way.

It does not attract National Insurance. HMRC's National Insurance Manual says a payment from a registered pension scheme is disregarded for Class 1 contributions, and the MOD's 2026 tax factsheet says National Insurance "is not normally payable on pension/EDP income". That is why the same gross figure goes further as a pension than as pay.

Several payments are not taxed at all: the AFPS 75 and 05 automatic lump sum and an AFPS 15 commutation lump sum (within the lump sum allowance), the Resettlement Grant, EDP lump sums, War Pensions and AFCS awards. Our guide to whether armed forces pensions are taxable covers each one.

The 2026/27 Income Tax bands

The tax year runs from 6 April 2026 to 5 April 2027. Everyone gets a Personal Allowance of £12,570, which shrinks by £1 for every £2 of income over £100,000 and is gone at £125,140.

Between £100,000 and £125,140 the shrinking allowance means each extra £1 costs 60p in tax, a marginal rate of 60%. A pension that pushes total income into that range is taxed hard, which the calculator shows in the rate on your next £1.

Worked examples

Three cases show how much the rest of your income matters. All use the 2026/27 UK bands.

On its own, an £18,000 pension uses the Personal Allowance and pays 20% on the rest. Add a £35,000 salary from a second career and the allowance is used by the salary, so the pension is taxed at 20% and then 40%. In the third case the pension carries total income to £110,000, into the allowance taper, and 48% of the pension goes in tax.

That is the position of anyone who leaves on an immediate pension or an Early Departure Payment and takes a civilian job: the pension is taxed at the marginal rate of the salary. The State Pension adds to the same pile later. It is paid without tax taken off, so HMRC usually collects the tax on it by adjusting the tax code on your armed forces pension.

The lump sum allowance and LSDBA in plain English

Since the Lifetime Allowance was abolished on 6 April 2024, tax-free cash is limited by two allowances, both unchanged for 2026/27:

• Lump Sum Allowance (LSA): £268,275. The most tax-free cash you can take across all your pensions in your lifetime. Anything above it is taxed at your marginal rate.
• Lump Sum and Death Benefit Allowance (LSDBA): £1,073,100. A wider limit that also covers serious ill-health lump sums and certain lump sums paid on death. Anything that uses the LSA uses the LSDBA too.

The MOD's lump sum allowance booklet says what counts on the AFPS: the automatic lump sum under AFPS 75 and AFPS 05, and the commuted lump sum under AFPS 15. It does not count the Resettlement Grant, lump sums under Early Departure Payment arrangements, or AFPS 75 Resettlement Commutation taken after 6 April 2010.

Most members are nowhere near it. On AFPS 75 or 05, the automatic lump sum alone would only reach £268,275 at a yearly pension of about £89,425. Two groups should check more carefully: anyone with large lump sums from other pensions, and anyone who drew a pension before 6 April 2024, whose allowance is reduced by the Lifetime Allowance they used. AFPS Form 22, the Transitional Tax-Free Amount Certificate, can give a better result for some and must be applied for before the first lump sum after April 2024. Our guide to the lump sum allowance goes further.

Scottish rates if you live in Scotland

Scottish Income Tax applies to the wages, pension and most other taxable income of Scottish residents. What decides it is where you live, not where you served or where the pension is paid from. Savings interest and dividends stay on UK rates.

For a modest pension Scotland can come out slightly cheaper: an £18,000 pension with no other income pays £1,046.33 in Scotland against £1,086 elsewhere, because of the 19% starter rate. With a £35,000 salary alongside it, the same pension pays £5,740.98 in Scotland against £4,146, because the 42% higher rate starts lower.

Tax codes, and other things the calculator leaves out

The calculator works out the tax due for the year. What is deducted each month depends on the tax code HMRC gives Equiniti Paymaster, so it can differ, especially in the first months of a new pension or when you also have a job. If your code looks wrong, check it with HMRC, not with Veterans UK.

It also leaves out a few things on purpose: Marriage Allowance and Blind Person's Allowance, relief for pension contributions or Gift Aid that would lower your adjusted net income, and the tax-free element of a disability pension paid to someone invalided out because of service, which HMRC exempts. If you live abroad, an armed forces pension is normally still taxed in the UK, subject to any double taxation agreement.