Pensioners have been urged to check if they are due a refund from HMRC after thousands of people clawed back overpaid tax from the Chancellor over the past few months.
New figures from the Government show more than 12,000 tax repayment claims were processed over the last three months of 2023, with over £38.7million paid out. This means there was an average reclaim of around £3,200 if each claim was successful.
Tom Selby, director of public policy at AJ Bell, said: “It is simply unacceptable that the Government has failed to adapt the tax system to cope with the fact Brits are able to access their pensions flexibly from age 55, instead persisting with an arcane approach which hits people with an unfair tax bill.”
Some £1.2billion in overpaid pension tax has been reimbursed to pensioners since 2015, when the law was liberalised so people could access their defined contribution pensions however they wanted to from age 55.
Mr Selby said: “Depressingly, the true overtaxation number will likely be substantially higher. In particular, people on lower incomes who are less familiar with the self-assessment process might be less likely to go through the official process of reclaiming the money they are owed. As a result, they will be reliant on HMRC putting their affairs in order.”
Why are pensions being overtaxed?
Since the 2015 tax year, HMRC policy has been to tax the first flexible withdrawal a person take during a tax year on a ‘Month 1’ basis.
This involves the tax officials dividing a person’s usual tax allowances by 12 and applying this to the withdrawal. If you make several withdrawals or get a regular income, this should be put right automatically. But those who make just a single withdrawal may overpay their tax.
How can I get a repayment if I have overpaid tax on my pension?
If you get a steady income from drawdown from your pensions, you shouldn’t need to do anything as HMRC will adjust your tax code and make sure you are taxed correctly over the course of the year.
If you are taking just a single withdrawal and have overpaid, you will need to fill in one of three forms to reclaim the funds. You should get your cash back within 30 days.
- Form P53Z – If you’ve emptied your pot by flexibly accessing your pension and are still working or receiving benefits
- Form P50Z – If you’ve emptied your pot by flexibly accessing your pension and aren’t working or receiving benefits
- Form P55 – If you’ve only flexibly accessed part of your pension pot.
From October 1 to December 31, the tax authority processed this many of each type of reclaim form:
- P53Z — 3,738 forms
- P50Z — 1,014 forms
- P55 — 7,307 forms.
Total repaid: £38,784,733.
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