If you have taken a lump sum from your pension fund you may have had excess tax deducted by the pension company, but you can reclaim it.
What pension companies do…
Although 25% of your pension savings can be drawn out tax free, the pension company normally interprets this as being 25% of any single withdrawal, leaving 75% of the lump sum to be taxed at your marginal tax rate. What’s worse, if the lump sum is the first withdrawal you have made from the pension scheme the company will apply an emergency PAYE code. This results in you having far more tax deducted under PAYE than is due.
Getting the monies back
There are two ways you can get this tax back:
- if you are not expecting to take further pension payments in the same tax year you can reclaim the tax on the lump sum using form P53Z or P53. We can submit those forms for you; or
- if you expect to take further pension payments in the same year your tax repayment should be dealt with through your PAYE code. The tax refund should be made when your next pension instalment is paid.
The second method requires an adjustment to your PAYE code, which you can request through your online personal tax account. Alternatively, you can phone HMRC to ask for your code to be changed. We can phone HMRC for you if we have authorisation to act on your behalf.
Would you like help and advice on this or any other issue?
Contact us straight away by telephoning 01932 564098 or email us using our ‘Contact Us’ page.
This note was published from our Autumn 2018 Newsletter dated September 2018
Please be aware that the information above may have changed in subsequent months.
This note is written for the general interest of our clients and is not a substitute for consulting the relevant legislation or for taking professional advice.