If you have taken funds from your pension but paid too much tax – can you get anything back?
So, you might believe that the right amount of tax will be automatically paid on your withdrawals when you access your pension account in accordance with government regulations.
This should be the case if you withdraw money from your pension on a monthly basis, but if you do so in the form of a single taxable withdrawal, such as through drawdown or an ad-hoc lump sum, (sometimes known as an uncrystallised funds lump sum or UFPLS), HMRC is likely to overtax you.
HMRC decided to charge the first flexible withdrawal a taxpayer makes during a tax year on a "Month 1" basis way back in 2015. Meaning that HMRC multiplies your normal tax deductions by 12 and applies them to the withdrawal.
You should automatically see an adjustment in your tax code if you make multiple withdrawals within the tax year. In contrast, when you make a single taxable withdrawal, this is not the case. You shouldn't have to pay any tax if you simply collect your 25% tax-free lump payment.
According to HMRC circa ￡925 million has been reclaimed by people who have filled out the correct forms since they started the “Month 1” basis.
So come on…. How do I get my money back?
If you only make a single withdrawal, you will either need to complete one of three forms or rely on HMRC to hopefully notice this overpayment and resolve this at the conclusion of the tax year.
The correct form that you will need to complete will depend on the way that you accessed your pension pot.
Here are the three forms:
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Use this form if you only flexibly accessed part of your pension.
Use this form if you have exhausted your retirement savings through flexible pension access and are not employed or receiving benefits.
Use this form if you have exhausted your retirement savings through flexible pension access and are STILL employed or receiving benefits.
You shouldn't need to do anything if you are collecting a regular income from drawdown since HMRC will change your tax code to make sure you are taxed correctly throughout the year.
Provided you fill out the correct form HMRC says you should receive a refund of any overpaid tax within 30 days.
Any questions reach out using the details below:
07773814684