Claiming a Tax Refund on Pension Withdrawals

If an individual withdraws a lump sum from a defined pension contribution pot using the new pension rules (effective from 6 April 2015), they could find that they don’t end up with as much cash in their pockets as they expect.

This happens when the pension provider doesn’t hold a P45 or current tax code for that person. HMRC guidance advises that the pension provider will have to deduct income tax from the pension payment at the emergency tax rate (i.e. Month 1). This means that any income received from the individuals pension pot will be taxed by reference to 1/12 of the personal allowance, 1/12 of the basic rate band & so on…

However if the scenario above applies to you, there are ways of obtaining an early income tax refund. How the tax is reclaimed really depends on your personal circumstances. There are a number of new forms to claim an income tax refund where you may have been taxed at the emergency rate:

  • Form P50Z – If an individual has chosen to empty all their pension pot in one go & they have no other PAYE or pension income (other than state pension).
  • Form P53Z – If an individual has chosen to empty all their pension pot in one go & they do have other PAYE or pension income other than state pension.
  • Form P55 – Where an individual has taken a lump sum payment which doesn’t use up all of their pension pot, they have only taken a single payment & don’t intend to take further payments in that tax year.

For more information on the above &/or if you require assistance with obtaining an income tax refund for income tax you’ve overpaid on your pension withdrawal, please contact us & we’ll be happy to help…

Please note that Emerald Accountants Limited shall not be liable for any loss or damage arising out of the use of any of the information disclosed in this article…