HMRC re­pays £262m pen­sion ‘su­per tax’ – how do I make a claim?

We ex­plain the dif­fer­ent forms to com­plete and how the sys­tem works

Shares - - CONTENTS - Tom Selby, se­nior an­a­lyst, AJ Bell

If you’re look­ing to make the most out of the pen­sion free­doms, man­ag­ing with­drawals so you pay as lit­tle tax as pos­si­ble is ab­so­lutely crit­i­cal.

A quar­ter of your pen­sion pot can usu­ally be with­drawn tax-free, with the re­main­ing 75% taxed in the same way as in­come.

This should be the case whether you buy a guar­an­teed in­come stream (an an­nu­ity), keep your money in­vested and draw a reg­u­lar in­come (draw­down), or take an ad-hoc ‘un­crys­tallised funds lump sum’ (UFPLS).

HEALTH WARN­ING

The UFPLS op­tion comes with a health warn­ing. If you’re plan­ning to make a sin­gle UFPLS with­drawal from your fund you risk be­ing hit with a hefty ‘emer­gency’ tax bill from HM Rev­enue & Cus­toms (HMRC).

Rather than treat­ing this as a sin­gle pay­ment, the tax­man as­sumes you are go­ing to keep tak­ing money out of your fund for the rest of the year.

Take some­one who makes a UFPLS with­drawal of £10,000 in April – the start of the tax year – and has no other in­come. Given that the per­sonal al­lowance is cur­rently £11,500, they would un­der­stand­ably ex­pect to pay no tax on the money.

Be­cause an emer­gency tax code is ap­plied, HMRC di­vides the per­sonal al­lowance by 12, mean­ing only £958.33 of the with­drawal is tax-free. The next £2,791.67 (£33,500 di­vided by 12) is taxed at 20%, with the re­main­ing £6,250 taxed at 40%. Af­ter all that, our saver gets back £6,941 – which is £3,059 less than they ex­pected. RE­LY­ING ON THE EF­FI­CIENCY OF HMRC TO SORT OUT YOUR FI NANCES ISN’T A GREAT STRAT­EGY GET­TING YOUR MONEY BACK

If you have been over­taxed on your pen­sion, you need to fill out one of three forms:

• P53Z: If you have cashed in your en­tire pen­sion and have one or more other sources of in­come

• P50Z: If you have cashed in your en­tire pen­sion and have no other sources of in­come

P55: If you have cashed in part of your pen­sion and don’t in­tend to make any fur­ther with­drawals Once you’ve sent off the form you should get your money back within 30 days.

Ac­cord­ing to HMRC, a whop­ping £262m has been re­paid to savers who have been over­taxed since the pen­sion free­doms launched.

How­ever, this is prob­a­bly the tip of the ice­berg be­cause it only cov­ers those who have com­pleted the of­fi­cial forms.

While 107,000 of these forms have been sent to HMRC since April 2015, we reckon some­where in the re­gion of half a mil­lion with­drawals that risk be­ing over­taxed were made dur­ing that pe­riod. That leaves hun­dreds of thou­sands of savers who have done noth­ing to get their cash back.

Clearly re­ly­ing on the ef­fi­ciency of HMRC to sort out your fi­nances isn’t a great strat­egy, so the only way to guar­an­tee you aren’t short­changed is to sort it your­self by fill­ing out the cor­rect tax re­claim form.

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