HMRC repaid pension savers a total of £48,560,205 between July and September this year – with the average person getting back £3,539
Thousands of people have claimed back around £3,500 on average from HMRC after they were hit with emergency tax after dipping into their pension for the first time.
HMRC repaid pension savers a total of £48,560,205 between July and September this year – with the average person getting back £3,539.
You may default to paying emergency tax on your first pension withdrawal if HMRC mistakenly thinks this you will continue to get this lump sum every month – even if you don’t make any further pension withdrawals that tax year.
You should be able to check if you are being charged emergency tax, by seeing if your tax code ends in M1, which stands for “Month 1”.
You can normally withdraw up to 25% of your pension pot tax-free from the age of 55, and then you’re charged your normal income tax rate on the remaining 75%.
Clare Moffat, pension expert at Royal London, said: “The temptation is to make your first withdrawal a big one to splash out a little after years of careful saving.
“Unfortunately, that’s exactly how you end up paying a large chunk of your life savings in emergency tax.“
The good news is, HMRC will repay you the tax owed at the end of the tax year – but you don’t have to wait until then, as there is a form you can fill out to get your money back.
How to claim back overpaid pension tax
You can claim back the difference between how much you paid in emergency tax, and how much you should have paid with your normal tax rate, by filling out a form online. Alternatively, you can wait for HMRC to repay you at the end of the tax year.
You’ll need to fill out one of the following three forms, depending on how you have accessed your retirement pot.
- If you’ve emptied your pot by flexibly accessing your pension and are still working or receiving benefits, you should fill out form P53Z
- If you’ve emptied your pot by flexibly accessing your pension and aren’t working or receiving benefits, you should fill out form P50Z
- If you’ve only flexibly accessed part of your pension pot then use form P55
Ms Moffat said you can trigger a smaller emergency tax bill when taking money out of your pension by making a small initial withdrawal. However, this can be less practical if a large sum was needed immediately.
An HMRC spokesperson said: “Ultimately, nobody overpays tax as a result of taking advantage of pension flexibility.
“We will repay anyone who pays too much because they’re on an emergency tax code and individuals can claim a repayment much earlier if they wish.”
