Thousands of retirement fund savers have successfully reclaimed over £10,000 in urgent taxes on their pension withdrawals in the previous fiscal year, with some individuals receiving refunds exceeding £100,000. If HM Revenue and Customs (HMRC) mistakenly assumes that your initial pension withdrawal will be recurring monthly, you may face emergency tax charges even if no further withdrawals are made within that tax year.
Typically, individuals can withdraw up to 25% of their pension tax-free starting from age 55, with the remaining 75% subject to regular income tax rates. According to data obtained by Royal London through a Freedom of Information request from HMRC, 11,700 pension savers reclaimed £5,000 or more in emergency tax during the 2023/24 tax year, representing a 21% increase from the previous year.
The number of people claiming refunds rose by 2,000 (21%) compared to the prior year, with 2,400 individuals receiving refunds exceeding £10,000, marking a 4% year-on-year increase. The average refund per saver stood at £3,342, up by £280 (9%) from the previous year, although many pension savers often experience delays in receiving their refunds. The top 25 refunds averaged an impressive £106,897.
In total, approximately 60,000 investors claimed tax refunds in 2023/24, a 20% increase from around 50,000 claimants in the previous year. Clare Moffat, a pension specialist at Royal London, highlighted the significant impact of unexpected tax bills on individuals’ financial plans, potentially causing delays or cancellations of intended expenditures like home purchases or dream vacations.
To reclaim overpaid emergency tax, individuals can submit an online form to recover the difference between the emergency tax paid and the amount owed at their standard tax rate. Alternatively, HMRC may automatically issue repayments at the end of the tax year. Depending on how retirement funds were accessed, claimants must complete one of three specific forms to initiate the refund process.