Pension tax overpayments hit £33m in Q2
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HM Revenue & Customs has repaid £33m in tax overpaid due to pension flexibility payments in the second quarter of this year, up from £23.2m in the first quarter. It is estimated that the true figure overpaid could be higher, as not everyone who is affected may be filling in the reclaim forms.
When people withdraw funds from their pension for the first time in a tax year, HMRC levies emergency tax on the assumption that the same amount will be withdrawn every month. Where people make regular withdrawals in the year, tax will subsequently be adjusted to the actual sums taken; but where pensioners make just one withdrawal, they remain overtaxed unless they fill in one of three claim forms.
When people withdraw funds from their pension for the first time in a tax year, HMRC levies emergency tax on the assumption that the same amount will be withdrawn every month. Where people make regular withdrawals in the year, tax will subsequently be adjusted to the actual sums taken; but where pensioners make just one withdrawal, they remain overtaxed unless they fill in one of three claim forms.
From 1 April 2021 to 30 June 2021, HMRC processed thousands of reclaim forms, including:
- P55 = 6,907 forms
- P53Z = 1,970 forms
- P50Z = 887 forms
Investment platform provider AJ Bell previously calculated that savers overtaxed on pension freedom withdrawals reclaimed £716m between 2015 and April 2021, criticising HMRC's "steadfast reluctance" to consider reforms to how withdrawals are taxed.
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