A set of forms has recently been released by HM Revenue & Customs, so that individuals claiming from their pension pot can reclaim tax overpaid.
The forms are P55, P50Z and P53Z, and will be used by individuals who have had tax deducted at the emergency rate when accessing their pots under the new pension freedoms.
Tax will be deducted in most cases at an individual’s marginal rate, which could mean that basic rate taxpayers finds themselves paying at 40 per cent rather than 20. If a person making a withdrawal from their pension pot has no P45, but leaves an amount in the pot, they would be taxed at the emergency rate and would have to wait till the tax year end to make a claim for repayment. The form P55 can now be used to reclaim tax earlier.
HMRC has advised people to consult their pension provider if they are intending to make a series of smaller withdrawals. The organisation commented:
“Having applied the temporary rate of tax to the first payment, in some cases the provider might be able to report a zero payment for the months where no withdrawal is made, and work with HMRC to tax subsequent withdrawals and correct the person’s tax position.”
Forms P53Z and P50Z should be used if a person withdraws their entire pension pot. Advisors had previously been concerned about clients paying too much tax and having to wait until the end of the tax year before being able to reclaim. However, the introduction of the new forms has eased some of the concerns.
Forms used to reclaim overpaid tax
Prior to the introduction of the new forms, most people would use a form P50 to claim back any overpaid tax. However, this form can only be used if the individual wasn’t going to work within four weeks, claim Jobseeker’s Allowance, Employment and Support Allowance, taxable Incapacity Benefit or Carer’s Allowance.
If you take the whole amount of your pension pot and have no other income, you should complete a form P50Z to reclaim any overpaid tax.
If you are working or in receipt of benefits and take the whole of your pension pot, use this form to make a claim for repayment of tax.
If you have taken cash from your pension fund but not withdrawn the whole amount, and are not working or receiving benefits, use this form to make a claim for repayment.
For more information about the new pension rules, contact us here at The Accountancy Partnership.