If you’ve served in the military and you’re receiving or due to receive a pension, you might be asking the question: is an armed forces pension tax free?

It’s a common question for anyone leaving service, whether you were full-time, in the reserves or still serving and planning ahead. Understanding how your pension is taxed can make a real difference to your finances.

In most cases, armed forces pensions are taxable. But there are important exceptions and reliefs that could reduce the amount of tax you pay or even remove it completely. Read on to find out more.

What is an armed forces pension?

The armed forces pension is a retirement income for people who’ve served in the British military. How much you get and when you can claim depends on how long you served and which pension scheme you were in. 

There are three main schemes:

  • AFPS 75 is for people who joined before April 2005
  • AFPS 05 covers those who joined between April 2005 and March 2015
  • AFPS 15 is for anyone who joined after April 2015, or who was transferred into it

Each armed forces pension scheme has different rules, but they all provide a way to support you after service.

Whether you were in the Regulars or the Reserves, you may be entitled to either a lump sum payment when you leave service, a monthly pension, or both. The lump sum is usually a one-off tax-free payment. The ongoing pension gives you a regular income.

Is the pension taxable?

In most cases, your armed forces pension is treated like any other income. That means your monthly pension payments are subject to income tax.

The good news is that your lump sum – the one-off payment you get when you leave service – is usually tax-free. It’s the regular monthly income that may be taxed, depending on how much you get.

Your pension is taxed through PAYE, just like a salary. That means tax is automatically taken off before the money hits your account. The rules around tax on a military pension are similar to other types of income, with tax only applying to amounts above your personal allowance.

For example:If your total income, including your pension, goes over the personal allowance (currently £12,570 a year), the amount above that limit will be taxed at the usual income tax rates.

So if you’re receiving £15,000 a year from your pension, only £2,430 of that would be taxed.

Are there any tax-free exceptions?

Yes, there are some situations where all or part of your armed forces pension could be tax-free.

Here’s when that might apply:

  • Lump sum payments are always tax-free. You get this as a one-off when you leave service.
  • If you were medically discharged, you might receive a pension or lump sum that’s exempt from tax.
  • Payments under the Armed Forces Compensation Scheme (AFCS) or War Pension Scheme (WPS) are also tax-free. These are made for injuries, illnesses or deaths caused by service.
  • If you live abroad and are classed as a non-UK tax resident, your pension may not be taxed in the UK.

It’s always worth checking your individual situation. Tax status can change depending on where you live, what kind of pension you get and how it’s been awarded. For a comprehensive list of exemptions, check our Military Tax Exemptions guide.

Tax reliefs and refund opportunities

Even if your pension is taxable, you might still be owed money back from HMRC. Armed forces veterans are often taxed incorrectly and that means you could be due a refund.

Here are some common reasons why tax gets overpaid:

  • You left the military part-way through the tax year, so your PAYE tax was based on the wrong annual income
  • Your tax code is wrong, which happens more often than you’d think
  • You moved abroad and became a non-UK resident, but HMRC didn’t update your records

If any of that sounds familiar, it’s worth checking. If you've been taxed incorrectly, you could be due a military pension tax refund going back several years.

RIFT specialises in military tax refunds. We’ve helped thousands of service leavers reclaim what they’re owed. 

Do I need to file a tax return?

Most people receiving an armed forces pension don’t need to file a tax return. But there are a few situations where you might.

You’ll need to complete a Self Assessment tax return if:

  • You have extra income from things like self-employment, rental property or investments
  • HMRC asks you to file one
  • You live abroad and your tax status means HMRC needs more information

If you’re not sure whether you need to file, it’s always safer to check. Getting it wrong could mean missing out on a refund or getting fined for not filing when you should.

What if I live overseas?

If you’ve moved abroad after leaving the military, your pension might still be taxed in the UK – but not always.

It depends on your tax residency status. If HMRC classifies you as a non-UK resident, your armed forces pension might not be taxable in the UK. But that doesn’t always mean it’s tax-free. You could still pay tax in the country you live in.

The UK has double taxation agreements (DTAs) with many countries. These agreements are designed to stop you being taxed twice on the same income. They can help you avoid paying both UK and local tax on your pension.

Getting this right is important. The rules can be tricky, especially if you’re receiving other types of income or benefits. It’s a good idea to speak to a tax expert who understands both military pensions and overseas tax laws.

How RIFT can help

At RIFT, we’ve been helping military personnel and veterans with their tax since 1999. We know how the system works and where things often go wrong.

Whether it’s a wrong tax code, an overpayment, or a missed refund, we’re here to make it right. We’ve handled thousands of claims for people leaving the armed forces and can quickly spot when something’s off.

If you think you’ve paid too much tax on your forces pension, or just want peace of mind that everything’s in order, talk to us. We’ll check your records, deal with HMRC and claim back anything you’re owed.

You’ve earned your pension. We’ll help make sure you keep as much of it as possible.

FAQs

Is my armed forces pension taxed if I move abroad?

It depends on your tax residency status. If you’re classed as a non-UK resident, your pension might not be taxed in the UK. But you could still pay tax in your new country unless a double taxation agreement applies.

How much tax will I pay on my forces pension?

You only pay tax on the amount above your personal allowance, which is currently £12,570 a year. The rest is taxed at the standard income tax rates.

Can I reclaim tax if I’ve been overcharged?

Yes. If you’ve been taxed incorrectly, you could claim a refund going back up to four tax years. This is common for people who leave the military mid-year or have the wrong tax code.

Are war pensions tax free?

Yes. Payments from the War Pension Scheme and Armed Forces Compensation Scheme are tax free. These are awarded for illness, injury or death due to service.