Whilst this is a significant drop from the previous quarter, where £61m was repaid between July and September, total repayments for the year increased from £134m in 2022 to £204m in 2023.
Pension savers can withdraw money from their pots after they reach 55 thanks to pension freedoms introduced in 2015, but those who withdraw for the first time are in danger of being charged excessive amounts of tax at an ‘emergency rate’.
Here, Which? explains why HMRC is overcharging pension tax and how you can claim a refund if you've been affected.
How much has been overpaid?
A total of £38,784,733 was repaid to people overtaxed on pension withdrawals from 1 October to 31 December 2023, according to the latest data from HMRC.Over 12,000 reclaim forms were processed during the quarter, with an average reclaim of £3,216This table shows the average reclaim value and how many refunds were processed in each quarter.
Find out more:Why are pensions overtaxed?
The second is to take a lump sum from a pension drawdown plan. If you do this, 25% of your total pension savings is tax-free and any subsequent withdrawals are subject to income tax.
Your pension company collects the tax on your behalf, so the lump sum you get is paid net of tax. However, many people overpay tax the first time they withdraw from their pension. This is because your provider may not know what your tax code is or details of other income, if you have any.
This means you'll be taxed as though the lump sum you're withdrawing will be repeated every month. For instance, a £10,000 withdrawal could see you being taxed as though your annual income is £120,000. If this goes unnoticed, it can make an unnecessary dent in your pension pot.
Find out moreCould you be owed a pension tax refund?
If you are taking a steady stream of income via drawdown, you shouldn’t need to take any action as HMRC should adjust your tax code to ensure you pay the correct amount over the year.
However, if you make a single withdrawal, it’s important to check you haven’t paid more than you should.
How to claim your refund
If you've overpaid tax, you'll need to fill out one of three claims forms:
P55
P53Z
P50Z
If you don't want to use the government's online service, you can fill out a form on-screen, print it off and post it to HMRC, or print off and fill in a form by hand. HMRC says you should receive a refund of your overpaid tax within 30 days.
The article was first published on 7 May 2023 and was last updated on 29 January 2024 when HMRC released data relating to Q4 2023.
source https://www.which.co.uk/news/article/overpaid-pension-tax-are-you-owed-a-refund-aXVx03e59qLY