29 February 2024 , 09:30
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Thousands of pensioners are being urged to check if they’re owed money back from HMRC after being hit with emergency tax charges.
Data released under a Freedom of Information (FOI) request to Royal London reveals 2,300 people successfully claimed back more than £10,000 — and in some cases, the amount reclaimed was above £50,000. Under pension freedom rules introduced in 2015, you can normally withdraw up to 25% of your pension tax-free from the age of 55, and then you’re charged your normal income tax rate on the remaining 75%.
But those who dip into their funds for the first time risk being charged an “emergency rate” level of tax. It happens when HMRC treats the withdrawal as if it will continue to be paid each month - even if the person does not make any further withdrawals that tax year.
However, it is possible to reclaim your cash from HMRC by filling out a form online. You’ll need to claim back the difference between how much you paid in emergency tax, and how much you should have paid with your normal tax rate. If you don’t put in a claim, you'll have to wait for HMRC to repay you at the end of the tax year.
According to the FOI data, 9,700 pensioners claimed back £5,000 or more in the tax year 2022/23, with 2,300 of those claiming over £10,000, and 300 receiving a cheque for more than £15,000. The average refund was £3,062, but the top 100 claims saw an average of £54,185 returned to savers.
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Clare Moffat, pension expert at Royal London, said: “Naturally, this could come as a huge shock to some people, especially if they had earmarked the money for something specific like a holiday or home improvements. Suddenly, a big chunk of the money they thought they had coming to them has in fact gone to pay emergency taxes, which they probably hadn’t anticipated. “
She added: “People are handing more money to HMRC than they should, but there are ways to avoid this. While there may be a desire or an urgent need to make your first pension withdrawal a large one, you should be mindful that you may find yourself charged excessive tax. “
How to get your money back
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