£44million was paid back to Britons who overpaid tax on their pension withdrawals between January and March, figures from the tax office show.
A £1 trick could save state pensioners from overpaying £2800 in tax. £44million was paid back to Britons who overpaid tax on their pension withdrawals between January and March, figures from the tax office show.
HMRC data shows more than 15,000 reclaim forms were processed during the first quarter, with an average reclaim of £2,881. But Tom Selby, director of public policy at AJ Bell, said a tactic savers could deploy to escape overpaying HMRC is to take a notional withdrawal first.
He told state pensioners: “It would depend upon the pension scheme’s own rules. Some pension providers may, for example, accept a £1 withdrawal, whereas others may ask for a higher amount. So pension savers need to check with their pension.”
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“Alternatively, you can fill out one of three HMRC forms and you should receive your tax back within 30 days. If you don’t do this, the Revenue says it will put you back in the correct tax position at the end of the tax year,” he said.
Mr Selby said: “The average reclaim has fallen slightly this quarter to £2,881, its lowest level in almost six years. Despite this, these figures show too many people are still being overtaxed because of the Revenue’s outdated approach.
”These figures are likely to be only the tip of the iceberg, however, as they only capture those who fill in the relevant HMRC reclaim form. In reality many more people will use the quicker process of reclaiming the money they are owed.
“As a result, they will be reliant on HMRC putting their affairs in order at the end of the tax year. HMRC has offered a glimmer of hope to those who take a regular drawdown income.
“From April 2025, the government improved its tax code process so these people will be moved from an emergency code to paying the right amount of tax more quickly. But that doesn’t help those taking a one-off withdrawal who will continue to be overtaxed. We have only just blown out the candles on the cake celebrating 10 years of pensions freedoms.
“It is simply unacceptable that after all this time the government has still not managed to adapt the tax system to cope with the fact Brits are able to access their pensions flexibly from age 55, instead persisting with an arcane approach which hits people with an unfair tax bill, often running into thousands of pounds, and requires them to fill in one of three forms if they want to get their money back within 30 days.”
