Claim Back Tax in The UK If You’ve Had Too Much Deducted From Your Pension
Reasons why you might have overpaid through your pension
Common reasons why you may have overpaid include:
- your pension provider has used the wrong tax code by mistake or they don’t have the right personal information for you
- your taxable state benefits/other income has reduced and HM Revenue & Customs (HMRC) don’t know about it – which means the amount of income included in your tax code is too high
- the amount of annual State Pension included in your tax code is wrong
- you have more than one tax code (because you have several pensions or pension and employment income) and you haven’t used up all your allowances on your first tax code but your other tax codes assume that you have
- overpayments of tax on retirement annuities before April 2007 (where 22 per cent tax was taken off before you received the pension but you were a non-taxpayer or 10 per cent taxpayer; see article on retirement annuities below)
- overpayments on pension lump sums (also known as ‘trivial commutation’) which are taken instead of a small monthly pension
Checking your tax code if you’re in PAYE
If you’re employed, or your pension or annuity is dealt with through PAYE you can look at your latest PAYE Coding Notice (it’s usually sent to you at the start of the tax year and re-issued if something changes) to check what type and amount of tax-free allowances you get, you pay tax on anything above your tax allowances.
The PAYE Coding Notice confirms your tax code and this should match the one shown on your employment or pension payslip.
If you have several different pensions taxed through PAYE, or you work and get one or more pensions, you should get more than one PAYE Coding Notice – in this case it’s especially important to check them all.
(In certain circumstances, you may not get a PAYE Coding Notice every year – for example if you retire early. If you are concerned that you may be paying too much tax but don’t have a document that you can check please contact your Tax Office).
Claiming a refund through PAYE
If you’ve just retired and have no pension income due
If you’ve just retired and don’t expect to receive any other sort of taxable income (this includes pension income) at all during the tax year you should complete form P50 ‘Claiming tax back when you’ve stopped working’ and send it to your Tax Office along with Part 2 and Part 3 of your P45 – a form which you get from your employer when you stop working for them.
Keep part 1A as a record of income. HMRC will then send any refund due to you in the post.
If you receive a pension or retirement annuity through PAYE
If you are receiving taxable pension income (including a retirement annuity) through PAYE and you find an error within the current tax year, contact your Tax Office. They will send a revised PAYE Coding Notice to your pension provider who will adjust the tax code to alter any further payments for that year.
The overpayment will be corrected automatically by your pension provider who will refund the tax in the next payment. You may pay less tax the following month or if it’s a large amount you’ll get a refund (marked R on your payslip).
Making a claim for previous tax years
If you’re claiming a refund of tax deducted on earnings or pensions for previous years write to your Tax Office and include any relevant documents about your earnings/pensions during the tax year for which you’re claiming, such as:
- P60, P45
- information about your employment and benefit history
They will look into your query, work out how much they owe you and send you a refund in the post.
Claiming a refund on a retirement annuity
Since April 2007, income from retirement annuities has been subject to tax through the PAYE system – if you think you’ve overpaid in this way see the section ’Claiming a refund through PAYE’ above.
However, before April 2007 retirement annuities were taxed at 22 per cent unless you completed form R89 ‘Application to receive an annuity without tax taken off’ to request otherwise (or form R86 ‘Application to receive a joint annuity without tax taken off’ for a joint annuity). If you didn’t complete one of these forms you may have overpaid if you were a non-taxpayer or only paid 10 per cent tax in those years.
The forms R89/R86 are no longer in use (except for purchased life annuities), but if you’ve overpaid you’ll be able to claim some tax back using form R40 ‘Tax Repayment’ for any periods up to April 2007 – also read the section below on time limits for claiming tax back.
Claiming a refund on a pension lump sum (‘trivial commutation’)
If your contributions into a pension fund would result in you receiving a small pension of a few thousand pounds a year, you may choose to take it as a lump sum rather than a small amount each month. This is called a ‘trivial commutation’. If you’ve received one or more lump sum payments it’s possible that the tax you paid was at a higher rate than you were due to pay over the tax year.
If you are a Self Assessment customer you should declare any lump sum payments on your Self Assessment return. If you are due a refund, HMRC pay it directly into your bank or building society account.
Otherwise if you want to apply for a refund you’ll need to:
- ask your Tax Office for form P53 ‘Trivial pension/annuity in-year repayment claim’
- complete the form with details of your estimated income for the year – the form will be tailored to your individual circumstances so you’ll only have to provide information that is relevant to you
- send it to your Tax Office with Part 2 and Part 3 of your form P45
- keep Part 1A as a record of your income
HMRC will send any refund due to you in the post or pay it directly into your bank or building society account.
Because this refund is based on estimated figures they will have to checked at the end of the year, so HMRC will send you another P53 ‘Trivial pension/annuity year end check’ after 5 April so you can tell them the actual details of your income.
Time limits for claiming back tax
If you’ve overpaid tax you must claim it back no later than 31 January five years after the end of the tax year (5 April) in which the overpayment was made. For example, a claim for the tax year 2003 which ended on 5 April 2004 must be made by 31 January 2010. Read the later sections to find out how to make a claim.
Documents you’ll need to make a claim
When you’re claiming tax back (except when you’re claiming back tax through form R40) you’ll need to include any relevant documents about your income during the tax year for which you’re claiming, such as:
- payslips
- forms P60, P45
- information about your employment and benefit history
- information about your pensions and other income
How you’ll get your refund
HMRC normally send you a payable order by post but you can tell them to pay the refund directly into your bank or building society account. You can also nominate someone else to receive the refund and it can be paid to them by post or directly into their bank or building society account.
There are sections about how you would like HMRC to pay your tax refund on all the relevant forms.
Claiming tax back for someone else
If someone’s appointed you to manage their financial affairs, or if you’re a spouse/civil partner or relative of someone who has difficulty making a claim or has died, you may be able to claim tax back for them.
Get in touch with their usual Tax Office or the HMRC Office that deals with repayment claims.
