Claiming tax back on pension lump sum payments

Good news – you won’t normally have to reclaim tax yourself

If we don’t already have your tax details, your first payment will be on an emergency tax basis. This means we'll normally have to deduct more tax than you owe to begin with. We’ll contact HMRC and will normally pay back any extra tax you’ve paid in your future income payments.

This process is similar to when you start a new job – it can take a month or two to sort out your tax but it’s all sorted out for you.

Once we do have your up-to-date tax details, the right amount of tax should be deducted from your payments for you. You won’t normally need to do anything else.

Good news – you should have no tax to pay

If you’re just taking money from your tax-free cash amount (normally 25% of your pension pot) so there's no tax to pay.

Good news – you may be able to reclaim some tax

When you cash-in your whole pension pot you’ll normally receive the first 25% tax-free and need to pay income tax on the rest. In this situation, if your pot is worth £10,000 or less strict HMRC guidelines normally require us to deduct basic rate tax on the payment upfront.

For some people this is just right, others can reclaim some tax and some higher earners will need to pay extra tax on top. This depends on your total income in this tax year – this includes salary, state pensions and rental income.

• Non-taxpayers (generally income under £12,500)

  Claim your tax back:

  • If you've stopped working, have no pension income (other than the state pension) and aren't receiving benefits:
    Complete a P50Z (opens in a new tab)

  • If you're still working, receiving other pension income or receiving benefits:
    Complete a P53Z (opens in a new tab)

• Basic rate taxpayers (generally income between £12,500 and £50,000 for the UK)

  In many cases, there’s nothing more to do – the basic rate tax you owe is already deducted for you.

  If your earned income plus the taxable part of the money you're taking from this pension pot takes you over £50,000 (UK) you'll need to pay higher rate tax on everything above this amount. You can do this by contacting HMRC.

• Higher and additional rate taxpayers (generally income over £50,000 for the UK)

  You'll owe higher rate or additional rate tax on the taxable part of this pension pot. We’ve already deducted basic rate tax for you and the extra can be paid by contacting HMRC.

   

  The figures above are based on the position in England,Wales and Northern Ireland. Different tax bands and rates apply in Scotland.

Good news – you’ll normally be able to reclaim tax

There are three steps to consider:

1. You can normally take the first 25% of your pension tax-free - the rest is taxable

   The amount of income tax due on the balance depends on your total income in the tax year.

2. You may pay too much tax initially

   When we make the payment to you, strict HMRC guidelines require us to deduct tax from your payment upfront on an “emergency tax basis”. This is because we don’t know your tax details yet. The emergency tax basis requires us to deduct tax as if you took the same amount every month.

   This usually means we have to deduct too much tax upfront – sometimes as much as double the amount you actually need to pay.

3. You need to complete a HMRC form to reclaim any over-paid tax

   Complete a P55 on Gov.uk (opens in a new tab)

Good news – you won’t normally need to reclaim tax

We'll normally be able to take the right amount of tax from your payment. Because you've already made a withdrawal we should have your tax details, so you won't have to do anything else.

Good news – you’ll normally be able to reclaim tax

There are three steps to consider:

1. You can normally take the first 25% of your pension tax-free - the rest is taxable

   The amount of income tax due on the balance depends on your total income in the tax year.

2. You may pay too much tax initially

   When we make the payment to you, strict HMRC guidelines require us to deduct tax from your payment upfront on an “emergency tax basis”. This is because we don’t know your tax details yet. The emergency tax basis requires us to deduct tax as if you took the same amount every month.

   So if you take £20,000 as taxable income, we have to deduct tax as if you were taking 12 times this amount (£240,000) in this tax year.

   This usually means we have to deduct too much tax upfront – sometimes as much as double the amount you actually need to pay.

3. You need to complete a HMRC form to reclaim any over-paid tax

   Taken cash from your pension pot but not emptied it?

   Complete a P55 on Gov.uk (opens in a new tab)

   Cashing-in your full pension pot?

   • If you've stopped working, have no pension income (other than the state pension) and aren't receiving benefits:
     Complete a P50Z on Gov.uk (opens in a new tab)

   • If you're still working, receiving other pension income or receiving benefits:
     Complete a P53Z on Gov.uk (opens in a new tab)