Tax overpayments as a result of pension payments

Since the introduction of pension freedoms in 2015, which allowed pension savers to remove cash from their pensions (rather than buying an annuity), record numbers of people have been making withdrawals (£433m overall).

Individuals over the age of 55 are able to take income from defined contribution plans. Withdrawals above the 25% tax free amount are taxable at their marginal rate of income tax.

If the individual has already withdrawn money from their pension during the tax year, their provider will already have a tax code which reflects this. In most cases however the provider will not have the correct tax code, so the individual’s withdrawals are will be taxed using a higher rate tax code, resulting in too much tax being paid.

HMRC do advise that any overpayment due to an emergency tax code being applied can be claimed back immediately to be repaid. If a claim is not paid, they will make a repayment at the end of the year.