Claim back money HMRC Pension Tax code rule change

The error came from emergency tax codes applied to pensions. This was introduced as part of the pension reforms in 2015.

Since these new ‘pension freedoms’ were introduced in April 2015, people no longer have to opt for an annuity. They can instead, withdraw money in small amounts or even as a lump sum.

HMRC took off extra tax from additional amounts withdrawn from pension funds, often incorrectly assuming this withdrawal would be ‘month one’ in a series of payments throughout the rest of the tax year.

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Pensioners then had to reclaim their overpaid tax.

This tax error has seen HM Revenue & Customs (HMRC) pay back around £1 billion in overpaid pension tax since the rule change.

How to tell if you’re due a pension tax code refund

You could be due a refund from HMRC if you are over 55 (the age you’re allowed to access your pension pot from, though this is rising to age 57 from 2028) and have taken a taxable lump sum from your pension for the first time, or withdrawn your whole pension pot at once.

Do you pay tax on the state pension? I’ve been asked this a lot after last night’s @ITVdebate so

– The state pension is, and has always been taxable income.
– The full state pension is currently £11,500/yr
– The standard personal allowance (the amount you can earn before you…

— Martin Lewis (@MartinSLewis) June 5, 2024

How do I claim a pension tax refund?

You can apply for the money back immediately and even if you do nothing, HMRC should automatically get the overpaid tax back to you by the end of the tax year (on 5 April).

To get your money back before the new tax year, you’ll have to fill in one of three different forms. 

• If you have emptied your pension and have no other income in that tax year, use P50Z.
• Emptied your pension but do have other taxable income that tax year, use P53Z.
• If you haven’t emptied your pension pot, use P55.

From April 2025 emergency tax codes will be replaced with regular ones

This should ensure the correct amount of tax is deducted in real time.

The HMRC newsletter confirming this change said: “We will automatically update the tax code for customers who are on a temporary tax code and would benefit from being on a cumulative code — this means they’ll avoid an overpayment or underpayment at the end of the year.

“Those who, for the first time, start to receive ongoing pension payments will benefit from this change. There is no need to contact HMRC and once a tax code has been changed we’ll inform customers by letter or digitally if they’ve signed up for paperless in the HMRC app or online.”