THE government has returned £45million to Brits who were overcharged pension tax when they withdrew cash from their retirement fund.
People who access one-off lump sums from their pensions are taxed as if that will be their monthly income – meaning they often pay far too much.
1
The latest official figures show that between July and September this year HMRC processed 13,325 tax refund claims.
The total amount repaid during the three month period was £44.7million.
Flexible pension access lets you draw down a portion of your retirement savings – while leaving the rest to continue gaining interest.
Most people can take up to a quarter of their savings as a tax-free lump sum, but anything over that amount will be taxed.
If you withdraw a big amount as a one off, you would be put on an emergency tax code and be taxed as though that will be your regular income throughout the year.
For example, if you took £30,000 as taxable income, you could be taxed as if you were taking 12 times this amount – £360,000 – in the financial year.
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, said: “People drawing money from their pensions have been overcharged an eye-watering £44million.
“And this isn’t some kind of horrible mistake by the taxman, it’s how the system is intended to work.
“Today’s figures show HMRC has paid out yet another whopping sum to people who were over-taxed when accessing their pensions.
“The problem is that people pay tax on lump sums as if they were going to keep drawing them for the rest of the tax year. They then either need to apply for a refund or wait to the end of the tax year.”
How can I find out if I am due a refund?
You could be owed a refund if you’ve taken a lump sum out of your pension recently.
If it was the first time you’ve drawn down cash from your pension pot and if you took more than 25%, it is likely that HMRC owes you money.
To claim the money back, go to the government website where you can fill in a form online or print one out to return by post.
There are different forms depending on your situation.
If you have withdrawn all of your pension, and you’ve stopped working, you should fill in a P50Z form.
People who are still working but have emptied their pension pot should return a P53Z form.
But if you’ve just taken out a chunk, you need to submit a P55 form.
It could take up to six weeks for your money to be returned.
Low-income workers will get a £53 a year pensions tax relief boost, it was revealed in the Budget.
Thousands of retirees have been given state pension refunds worth up to £8,628 each after being underpaid.
A leading think tank said workers may have to retire two years later to help pay for Covid debts.
Pensions will rise by rate of inflation next year as triple lock broken, DWP boss confirms
We pay for your stories!
Do you have a story for The Sun Money team?
Email us at [email protected]
