Published On: Mon, Jan 29th, 2024

Pension warning after widow drawing down £8,000 overtaxed by HMRC | Personal Finance | Finance

A widow has said she was overtaxed by thousands of pounds after taking a drawdown from her pension pot. The woman took a drawdown of £8,000 durng the 2023-24 financial year and contacted HMRC following receipt of £5,847.94 after tax.

But she said there was uncertainty on HMRC‘s part surrounding which online form to fill in to claim back overpaid tax.

Becky O’Connor, Director of Public Affairs at finance company PensionBee, explained the woman was placed on an emergency tax code.

She told GB News: “This typically happens the first time someone makes a withdrawal of income from their pension – and it can come as a bit of a shock, especially as you end up with far less from your withdrawal than you had anticipated.”

Ms O’Connor added it was slightly troubling HMRC was unable to tell the woman which form to fill out.

She said the document she should fill out is “most likely” form P55 (with other forms to complete if the full pension is taken out – P507 and P537).

PensionBee’s expert explained: “Once this form is filled out and a new tax code applied, the refund should come through with your next withdrawal.

“However, it’s also possible to wait until the end of the tax year and get a refund when you file your self-assessment tax return.”

HMRC will also make the requisite correction at the end of the tax year, with a calculation sent confirming any overpayment or underpayment of tax, according to Ms O’Connor.

An HMRC spokesperson told GB News nobody overpays tax as a result of taking advantage of pension flexibility.

HMRC will automatically repay anyone on an emergency tax code who pays too much. Individuals can also claim back any overpayment earlier if they want to.

The Government department confirmed if someone doesn’t apply directly for a refund, HMRC will work out their annual tax bill at the end of the tax year.

If too much tax has been paid on a lump sum, an individual can claim the tax back from HMRC. This is usually repaid within 30 days.

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