Recent reports suggest that many pension savers could be due a tax refund after the HMRC revealed that some people had been wrongly taxed. Some people had taken a lump sum from their pension fund and when doing so were taxed. The data from the government suggests that a total of £627 million is still owed. The average amount claimed back is a record £3500 per person between April and July.
It has been found that since pension rules changed in 2015, many people have been overcharged tax on their pension. The laws aimed to give control to people who saved within pensions, allowing them to withdraw money when they liked. The rules allowed for 25% of this lump sum to be taken tax-free and the remaining 75% would be liable to income tax when received as such through retirement.
However, the mistake has occurred for those who took the lump sum while they were still working. HMRC have wrongly applied emergency taxation on this 25% withdrawal, counting it as additional earnings. This is a mistake, and those charged should get their money back.
Up to this point, the HMRC has refunded over £27million in overpaid tax. However, there is still £500million left to be claimed.
If you believe you have been wrongly taxed, then you should go to the government’s refund website. You will fill in the P55 form if you haven’t withdrawn all your pension and you are not taking your regular payments either. This means you have requested a lump sum but have not claimed your pension benefits in full. If this is not you, you can still claim using the P53Z form if you have received your whole pension in a lump sum with other taxable income. You should select the P5OZ if you have no other taxable income.
Once you have made a claim, you should get a refund on the overpaid tax within 30 days.
The content in this article was correct on 17th August 2020. You should not rely on this article to make important financial decisions. Teachers Financial Planning offers advice on your teachers’ pension scheme, as well as financial matters in general. Please use the contact form below to arrange an informal chat with an advisor and see how we can help you.
