Thousands of individuals saving for retirement have successfully reclaimed over £10,000 in emergency taxes on their pension funds during the past tax year, with some even receiving refunds exceeding £100,000. The risk of being subjected to emergency tax arises when HMRC assumes that your initial pension withdrawal will be a recurring monthly payment, regardless of any further withdrawals within the same tax year.
Typically, individuals can withdraw up to 25% of their pension tax-free once they reach 55 years of age, after which the remaining 75% is subject to regular income tax rates. A recent Freedom of Information request by Royal London uncovered that 11,700 pension savers reclaimed £5,000 or more in emergency tax in the 2023/24 tax period.
This marked an increase of 21% compared to the previous year, with 2,400 savers obtaining refunds exceeding £10,000, representing a 4% rise year-on-year. The average refund per saver was £3,342, up by 9% from the prior year, although many individuals often faced delays in receiving their refunds. Notably, the top 25 refunds averaged an impressive £106,897.
Overall, approximately 60,000 investors claimed tax refunds in the 2023/24 fiscal year, showing a 20% surge from around 50,000 claimants in the previous year. Clare Moffat, a pension expert at Royal London, highlighted the impact of unexpected tax bills on individuals’ financial plans and emphasized the importance of reclaiming overpaid taxes promptly.
To reclaim overpaid emergency tax, individuals can either submit an online form to recover the excess amount or await HMRC to reimburse them at the close of the tax year. Depending on how access to the retirement fund was made, individuals will need to complete one of three specific forms.
