Thousands of elderly individuals in the UK are being encouraged to verify if they are entitled to refunds from HMRC, amounting to an average of approximately £3,800 per person. If you withdrew money from your pension for the first time and were subjected to emergency tax, you might be eligible for a repayment. Data reveals that HMRC reimbursed a total of £48.7 million in overpaid pension tax between April 1 and June 30, handling 12,767 claims with an average refund of £3,815.
Under the pension freedom regulations implemented in 2015, individuals aged 55 or above can typically withdraw up to 25% of their pension without tax implications, with the remaining 75% subjected to regular income tax rates. It has been reported that DWP state pensioners are anticipated to receive an additional £352 at no cost.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, highlighted the ongoing issue of overpaid pension tax, emphasizing the significant refunds averaging around £3,800. The problem arises when individuals take a lump sum from their pension for the first time and are taxed based on a ‘month one’ basis, assuming a recurring monthly withdrawal. This results in a higher tax burden, potentially disrupting retirement plans.
To reclaim the excess emergency tax paid, individuals can complete an online form or await reimbursement by HMRC at the end of the tax year. Different forms need to be filled out based on the method of pension pot access. Planning ahead and considering smaller initial withdrawals can help mitigate tax implications, especially if the intention is to use the funds for travel or home improvements. Otherwise, individuals facing substantial tax bills should submit the necessary forms for HMRC to process the refund promptly.
