What is emergency tax on pension?

Under the pension freedom rules introduced in 2015, you can withdraw the first 25% of your pension tax-free.

After this 75% income tax is applied to the remaining pension pot.

However, sometimes when you make the initial withdrawal your pension provider will apply an emergency tax code.

That could result in you overpaying tax on your pension lump sum.

For example, if you make a £10,000 withdrawal you could end up being taxed as though your annual income is £120,000.

The good news is that you can claim back any overpaid tax by contacting HMRC.

If you think that HMRC has charged to too much pension tax you’ll need to fill out one of the following forms:

• P55: if you haven’t withdrawn your entire pension pot and are not taking out regular payments, you’ll need to fill out a P55 form.
• P53Z: this form should be filled out if you have withdrawn your entire pension pot and also receive other taxable income. A total of 3,422 claims were made.
• P50Z: you have drawn down your entire pension pot but have no other taxable income you’ll need to fill out the P50Z form.
• P53Z: you’ve received a serious ill-health pension lump sum or flexibly accessed all of your pension.

You can find the forms on the HMRC website and search the form by number. Alternatively you can log into your personal tax account online or via the HMRC app or contact them via phone on 0300 200 3300.

It’s also possible to claim overpaid pension tax through your self-assessment tax return. However, this option may take longer to claim. You’ll also need to take on additional admin if you don’t normally complete a tax return.