HMRC repaid £24m in overpaid tax refunds in the last quarter of 2015 to individuals who had been allocated emergency tax codes to exercise pension freedoms.
This is down from the £37m repaid in Q3, but more than double the £10m overpaid and repaid in Q2. A total of 23,508 people have now been given refunds after overpaying tax on pension withdrawals since the introduction of pension freedoms.
An HMRC newsletter says over 8,000 people received refunds in Q4, 2015, with 3,528 people who had flexibly accessed part of their pension pot reclaimed an overpayment, using form P55, with 5,816 getting a refund after filling in form P53Z, the lump sum reclaim form and 1,629 people who had stopped working who filled in P50Z.
Intelligent Pensions head of pathways Andrew Pennie says: ” These people had overpaid tax because the money they had taken out of their pension as part of pension freedom had been taxed using emergency tax code. This enormous figure just shows how many people were taxed at the wrong rate. But even more alarming it’s probably an underestimation, as many more people still have to fill in the forms to reclaim tax, if indeed they know they have to do it at all.
“As with all things pension, reclaiming the overpaid tax is not straightforward. There are three different forms, all running to several pages, and choosing the right one depends on whether you have accessed the full pension amount and if you have other income from employment or private pensions. Some people will be unaware of the need to complete the form and it may only be identified when completing their annual tax return. Others will be put off by completing the form and some will complete the wrong one – all of which will result in delays to receiving their repayment of overpaid tax.”