HM Revenue & Customs (HMRC) has returned just under £34mn in overpaid tax to savers who accessed their pensions during the second quarter of 2022.
The tax authority said it had processed 10,018 pension flexibility claims forms and repaid £33.6mn to people who had been charged emergency tax when they withdrew money from their pension pot.
This is up from Q1 2022 when HMRC paid back £22.3mn and processed 7,412 forms.
Under the pension freedom rules people aged 55 plus can freely access their cash. However, any withdrawals above the 25 per cent tax free amount are taxable at an individual's marginal rate of income tax.
Where the provider does not have the correct tax code for the individual – which is in the majority of cases - withdrawals are taxed using a higher rate emergency tax code, which routinely results in an excessive tax deduction that has to be reclaimed later.
There are three forms - P55, P53Z and P50Z - that allow people to claim back money mid-way through the tax-year.
For Q4 2021, HMRC returned more than £42mn in overpaid tax to savers who accessed their pensions during the last quarter of 2021.
Jon Greer, head of retirement policy at Quilter, said: "This emergency tax situation can be particularly frustrating for people trying to access their funds quickly, particularly if they don’t understand why it has happened. It arises due to an oddity of the PAYE system when people start to take money from their pension.
“HMRC will make a repayment automatically, however given that could take time to be processed it is best to make a repayment claim yourself to avoid waiting. Working alongside a professional adviser who knows and understands the system will reduce the risk of more tax being handed to the tax man upfront.
"For example, it is possible to make multiple smaller pension withdrawals, rather than one lump sum, to ensure the majority of the withdrawal uses an up to date tax coding, which means you won't be emergency taxed on the full amount.”
Meanwhile, the number of transfers into qualified recognised overseas pension schemes (Qrops) has risen by 26 per cent to 3,900 in 2021 to 2022, up from 3,000 in 2020 to 2021.
Data published by HM Revenue & Customs today (July 21) showed the value of transfers also increased by around 22 per cent from £416mn to £517mn.
sonia.rach@ft.com
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