Thousands of individuals saving for retirement have successfully reclaimed over £10,000 in emergency tax on their pension funds during the previous tax year, with some even receiving refunds surpassing £100,000.
If HM Revenue & Customs (HMRC) assumes your initial pension withdrawal as a recurring monthly payment, you may face emergency tax charges, regardless of further withdrawals within the tax year.
Typically, you can withdraw up to 25% of your pension tax-free starting at age 55, while the remaining 75% is subject to your regular income tax rate.
Royal London, through a Freedom of Information (FOI) request to HMRC, uncovered that 11,700 pension savers retrieved £5,000 or more in emergency tax refunds in the 2023/24 tax year, marking a 21% increase from the previous year. Of these, 2,400 individuals received over £10,000, reflecting a 4% year-on-year rise.
The average reimbursement per saver stood at £3,342, showing a 9% increase compared to the prior year. Despite the wait for refunds, the top 25 refunds averaged an impressive £106,897.
In total, approximately 60,000 investors sought refunds in 2023/24, marking a 20% surge from the previous year’s roughly 50,000 claimants.
Clare Moffat, a pension specialist at Royal London, expressed astonishment at the substantial emergency tax refunds, emphasizing that unexpected tax amounts can disrupt financial plans, potentially delaying or canceling intended expenditures, such as home purchases or significant personal investments.
Claiming back overpaid emergency tax involves filling out an online form to receive the difference between the emergency tax and the correct tax amount based on your standard rate. Alternatively, HMRC may repay the excess tax at the end of the tax year.
To facilitate the process, individuals must complete one of three specific forms based on how they accessed their retirement savings.