Can I reclaim tax? Let's find out...
Good news - you won’t normally have to reclaim tax yourself
If your pension provider doesn’t already have your tax details, the first time you take a taxable payment will be on an emergency tax basis. This means your provider will normally deduct more tax than you owe to begin with.
Don’t worry – the government will give your provider an updated tax code. Your provider will normally pay back any extra tax you’ve paid in the income payments you receive from your pension plan in future.
This process is similar to when you start a new job – it can take a month or two to sort out your tax. Once your provider has your up-to-date tax details, the right amount of tax should be deducted from your income payments for you.
Good news - you may have no tax to pay
If you’re just taking money from your tax-free allowance (normally 25% of your pension pot) then there’s no tax to pay.
You might want to take a lump sum that is made up of more than just your tax-free allowance, though. For example, this could be where 25% of the lump sum itself is tax-free and the remaining 75% is taxable. In this case, if your provider doesn’t have your up-to-date tax details, strict government guidelines require them to deduct emergency tax from the taxable part of your lump sum. This usually means your provider may deduct too much tax upfront and you might want to claim it back.
Claim your tax back:
Complete a P55 on GOV.UK (opens in a new tab)
Good news - you could be eligible to reclaim some tax
When you take your whole pension pot, you’ll normally receive 25% tax-free – but you’ll need to pay income tax on the rest.
If your pot is worth £10,000 or less, you might take all of it as a lump sum (i.e. you take it as a ‘small pot’). In this case, strict government guidelines require your provider to deduct basic rate tax on the payment upfront.
For some people, being taxed at the basic rate will be just right for their circumstances. Others can reclaim some tax and some higher earners will need to pay extra tax on top – it really depends on your total income in this tax year. This includes salary, any State Pension you get, any rental income, and the taxable part of payments that are made to you from your pension plan.
But do keep in mind that these government guidelines only apply if you’re taking a small pot as a lump sum.
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Non-taxpayers (generally income under £12,750)
Claim your tax back if you’ve taken a ‘small pot’ (normally a pension plan worth £10,000 or less) as a lump sum:
Complete a P53 on GOV.UK (opens in a new tab)
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Basic rate taxpayers (generally income between £12,750 and £50,270)
In many cases, there’s nothing more to do – the basic rate tax you owe is already deducted for you.
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Higher and additional rate taxpayers (generally income over £50,270)
If your earned income plus the taxable part of the money you’re taking from this pension pot takes you over £50,270, you’ll need to pay higher rate or additional rate tax on everything above this amount.
Your provider will deduct basic rate tax for you. You can pay the extra by contacting the government, or they will contact you at the end of the tax year.
The figures above are based on the position in England,Wales and Northern Ireland. Different tax bands and rates apply in Scotland.
Remember, taking a pot worth £10,000 or less as a lump sum won’t always fall under ‘small pot rules’. For example, if you’ve already taken three personal pension small pots as lump sums, you can’t take then take a fourth and have small pot rules apply. In other words, instead of being taxed at the basic rate of income tax, you could be taxed at an emergency rate.
This is especially likely if your provider doesn’t have up-to-date tax details for you.
Claim your tax back:
Good news - you could be eligible to reclaim tax
When you first take taxable money from your pension plan, your pension provider may not have up-to-date tax details for you. In this case, government guidelines require your pension provider to deduct emergency tax from the taxable part of your lump sum payments upfront. This means your provider is required to deduct tax as if you took the same amount every month.
For example, if you took a taxable lump sum of £10,000, your provider would need to deduct tax as if you were taking 12 times this amount (£120,000) in this tax year.
This means your provider usually needs to deduct too much tax upfront, and you might want to claim it back.
Claim your tax back:
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 could be eligible to reclaim tax
When you first take taxable money from your pension plan, your pension provider may not have up-to-date tax details for you. In this case, government guidelines require your pension provider to deduct emergency tax from the taxable part of your lump sum payments upfront. This means your provider is required to deduct tax as if you took the same amount every month.
For example, if you took a taxable lump sum of £20,000, your provider would need to deduct tax as if you were taking 12 times this amount (£240,000) in this tax year.
This means your provider usually needs to deduct too much tax upfront, and you might want to claim it back.
Claim your tax back:
Taken a lump sum from your pension savings but not taken all of your pot?
Complete a P55 on GOV.UK (opens in a new tab)
It depends, everyone's situation is different
If your provider has your up-to-date tax details
If you’re taking a lump sum or lump sums, your pension provider will deduct tax on any taxable part of each sum using these details. But there’s still a chance the tax you pay may be more or less than what you owe. That’s because there could be other things that affect your tax situation that your provider doesn’t know about.
If you’ve set up a regular income, the government will give your provider an updated tax code. Your provider will normally pay back any extra tax you’ve paid in the income payments you receive from your pension plan in future.
This process is similar to when you start a new job – it can take a month or two to sort out your tax. Once your provider has your up-to-date tax details, the right amount of tax should be deducted from your income payments for you.
If your provider doesn’t have your up-to-date tax details
If you’re taking lump sums, government guidelines require your pension provider to deduct emergency tax from the taxable part of your lump sum payments upfront. This means your provider is required to deduct tax as if you took the same amount every month.
For example, if you took a taxable lump sum of £20,000, your provider would need to deduct tax as if you were taking 12 times this amount (£240,000) in this tax year.
This means your provider usually needs to deduct too much tax upfront, and you might want to claim it back.
If you’re taking a regular income, the first time you take an income payment will be on an emergency tax basis. This means your provider will normally deduct more tax than you owe to begin with.
Don’t worry – the government will give your provider an updated tax code. Your provider will normally pay back any extra tax you’ve paid in your future income payments.
Claim your tax back:
Taken a lump sum from your pension savings but not taken all of your pot?
Complete a P55 on GOV.UK (opens in a new tab)
Taken all of your pension pot?
