Thousands of individuals saving for their retirement have successfully reclaimed over £10,000 in emergency tax on their pension funds during the previous tax year. Some beneficiaries even received refunds exceeding £100,000.
Incurring emergency tax is a possibility if HM Revenue & Customs (HMRC) assumes that your initial pension withdrawal will be a recurring monthly payment, regardless of any subsequent withdrawals within the same tax year.
Typically, individuals can withdraw up to 25% of their pension without incurring tax once they reach the age of 55, with the remaining 75% subject to standard income tax rates.
According to data obtained by Royal London through a Freedom of Information request to HMRC, 11,700 pension savers reclaimed £5,000 or more in emergency tax in the 2023/24 tax period. This figure represents an increase of 21% compared to the previous year, with 2,400 individuals receiving refunds exceeding £10,000, marking a 4% rise from the previous year.
On average, each saver received a refund of £3,342, which is £280 higher than the previous year, with some individuals experiencing delays in receiving their refunds. The top 25 refunds averaged an impressive £106,897.
Overall, approximately 60,000 investors claimed tax refunds in the 2023/24 tax year, showing a 20% rise from the previous year’s total of around 50,000 claimants.
Clare Moffat, a pension expert at Royal London, expressed amazement at the significant refunds some individuals were entitled to, emphasizing the potential disruption unexpected tax bills could have on financial plans.
Individuals can reclaim overpaid emergency tax by submitting an online form to HMRC, or alternatively, wait for the tax authority to reimburse them at the end of the tax year. Different forms need to be completed based on how individuals accessed their pension funds.
