Pension savers are being urged to check their tax code to see if they might be eligible for a refund from HMRC. Those whose code ends « M1 », meaning « Month 1 », may be in for a rebate after being placed on emergency tax.
Pension savers who have seen emergency tax applied to their withdrawals have reclaimed on average £3,539 from HMRC, according to the latest figures from the tax office. Between July and September, HRMC refunded over £48.5million to people who were overcharged on pension withdrawals.
People aged over 55 with a defined contribution (DC) pension scheme or personal pension can usually withdraw the first 25% free of tax. Money taken out beyond that incurs the usual income tax rate.
Savers who withdraw large, one-off lump sums when making their first withdrawal are hit with an emergency tax at a higher rate. Those with the tax code « M1 » will see their withdrawals subject to this emergency rate.
PensionBee states most people who are on emergency tax overpay, but they can still claw back the money from HMRC. An initial large withdrawal can lead HMRC to overestimate a person’s income, leading them to taking more in tax as a result.
But at the end of each tax year, the Government calculates the amount of tax you’ve paid. For people who have overpaid, a refund is automatically processed, but this can take time.
If you have overpaid and are willing to wait, then you don’t need to do anything. But for anyone who wants to recoup their money sooner they should fill in a form.
There are three different types of forms: a P55, P53Z or a P50Z. These can be found on the Government’s website.
Which form you should fill in depends on how you have tapped into your retirement pot:
- For those who have emptied their pot by flexibly accessing their pension but are still working or receiving benefits, fill in form P53Z
- Complete form P50Z if you have emptied your pot by flexibly accessing your pension and aren’t working or receiving benefits.
- If you have only flexibly accessed a part of your pension then use form P55. HMRC expects to process refunds within 30 days.
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. »
