Are ISAs or Pensions The Right Choice For Your Retirement Plan?
Your savings play a big role in shaping your retirement. But it isn’t just a matter of putting money aside…
One of the drawbacks of entering into a flexible Drawdown is that you may be taxed at the emergency rate of 45% no matter what your usual tax band is.
To claim tax refund on your pension lump sum you will need either a P53, P53Z, P55, or P50Z form.
You can:
- Fill out the form by hand and post
- Fill the form out online, print off and post
- Fill out the form and submit online
Keep reading If you want to know more about eligibility criteria and which form you should use,
Why Would I Need to Claim Tax Back?
When a pension drawdown payment is made, HMRC requires the pension provider to deduct tax from the payment upfront on an emergency tax basis. Emergency tax assumes the same payment will be made every month.
If you take £15,000 as taxable income, HMRC assumes that you’re going to take this 12 times over the tax year (£180,000).
This usually means you will have overpaid tax up front.
My Pension Pot is Over £10,000 and I’ve Taken More Than 25%, Will I Be Eligible for a Tax Refund?
If your pension pot is over £10,000 and you’ve taken more than 25% you may be eligible for a tax refund.
Normally the first 25% of your pension is tax free. If you’ve taken more than 25% then you may of been taxed at the emergency rate and the amount of income tax due will depend on your total income for the year.
We make every effort to answer all your questions as thoroughly as possible, however, if something has been left unanswered, please get in touch.
I’ve Cashed In All of My Pension Pot and It’s £10,000 or Less, Can I Get a Tax Refund?
When you cash in the whole pension pot you’ll usually receive 25% of it tax free and will pay income tax on the remainder. HMRC tax rules indicate basic rate tax should be deducted on the upfront payment.
You may be able to claim tax back if your total income for the tax year, including salary, State Pension, rental income, and pension withdrawals, is less than £12,570.
Basic rate taxpayers (income between £12,571 and £50,270) will typically have had the correct amount of tax deducted at source.
Higher and additional rate taxpayers (income over £50,270) may need to pay additional tax depending on their total income.
Can I Claim Tax Back If I’ve Taken Less Than 25% of My Pension Pot?
If you’ve taken less than 25% of your pension pot, it’s unlikely that you’ll be able to claim money back on the lump sum, as this is paid tax free.
Will I Be Able to Claim Tax Back on My Pension if I’ve Received a Regular Income?
If you’ve been receiving retirement income on a regular basis, it’s unlikely that you will have of paid too much tax.
What Form Will I Need, a P53, P53Z, P55 or P50Z?
| P53 | P53Z | P55 | P50Z | |
|---|---|---|---|---|
| What is this from? | Claim an overpayment of tax | Reclaim tax on a flexibility payment | Claim an overpayment of tax | Claim for repayment of tax |
| When will I need this form | To claim back any tax owed on a small pension lump sum where you’ve had:
1. Trivial commutation of a pension fund 2. Small pension taken as a lump sum |
You need this form if you are retired and have taken your full pension pot amount as a ‘flexibility’ payment, but also have some other taxable income. | Use to reclaim an overpayment of tax when you have flexibly accessed your pension pot, but not emptied it. | If you do not receive employment income, Job Seeker’s Allowance, taxable Incapacity Benefit, Employment and Support Allowance or Carer’s Allowance. |
| When should I not use this Form? | If you have a pension flexibility payment and would like to claim a refund of overpaid tax. | If you have emptied your pension pot as a lump sum and do not have any taxable income | – | – |
| How do I submit this form? |
|
|||
Claiming Pension Drawdown Tax Back
Tax rules can be complicated and laws do change. If you have any questions about reclaiming tax on your pension, book a free meeting with one of our local Pension & Retirement Planning specialists.
How Long does Pension Drawdown Take?
The length of time it takes to draw down a pension can vary, you can find out how long the drawdown takes here.