OLDER households are being urged to check if they’re owed up to £54,000 in overpaid tax.
Pensioners who take out their defined contribution pension as a lump sum from 55 could be owed money back.
AlamyOlder households taking out pensions as lump sums could be hit with a surprise tax[/caption]
HM Revenue and Customs taxes these types of pensions immediately and at a higher “emergency” rate.
It can see you temporarily deducted giant sums leaving you out of pocket.
But luckily you can claw any overpaid tax back from the Government by filling out one of three forms. We’ve got more details below.
Recent figures obtained by a Freedom of Information (FOI) request by pensions and investment provider Royal London found 9,700 on defined contribution pensions claimed back £5,000 or more in the 2022/23 tax year from overpaid tax.
Over 2,000 claimed more than £10,000 back while 300 received a cheque for more than £15,000.
It found the average refund per saver was £3,062, with the top 100 clawing back sums averaging a whopping £54,185.
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.”
How to get the money back
Luckily, if you’ve taken out a giant withdrawal from your defined contribution pension you can get it back.
You can wait for HMRC to review your tax code at the end of the tax year and process a refund, but this can take a while.
Alternatively, you can fill in one of three forms: a P55, P53Z or a P50Z which can all be found on the Government’s website.
You can either print the forms off then post them back to HMRC via the address at the bottom of the form.
Or, you can apply for the refund online.
You will need to fill in a P55 if you’ve made a partial withdrawal from your pension and don’t plan on taking further payments before the end of the same tax year.
You’ll need to tell HMRC about any other income you expect to receive that year too.
If you have taken your entire pension as cash, you will need to fill in either the P53Z if you are still earning income, or a P50Z if you have stopped working.
It’s worth noting, you can avoid paying emergency tax on a lump sum pension withdrawal, if you don’t need a big amount straight away.
Clare explained: “A far better approach is to make your initial withdrawal a modest one and this will govern how much tax you pay on future withdrawals.”
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