HMRC repays nearly £45m in overpaid pensions tax in Q3

HMRC repaid £44,659,174 in overpaid tax on flexible pension withdrawals in Q3 2021, with an average reclaim of £3,352, the government’s latest Pension Schemes Newsletter has revealed.

This represents a more than £5m year-on-year increase in flexible pension withdrawal tax repayments from HMRC, with a total of £39.4m repaid in Q3 2020.

The tax repayments on flexible withdrawals are necessary as HMRC applies an emergency 'Month 1' tax code on the first withdrawal.

“While those taking a regular income should have their tax code adjusted automatically, anyone making a single withdrawal in the tax year will need to fill out one of three HMRC forms to get their money back within 30 days," AJ Bell head of retirement policy, Tom Selby, explained.

“If they don’t, they will need to wait to the end of the tax year, when HMRC says they should receive a rebate.

However, Selby also noted that the government recently announced plans to increase digitisation in the administration of pension tax relief as part of the Budget.

"Policymakers should use this opportunity to assess the current approach to the taxation of pension freedoms withdrawals," he said.

“At the moment savers risk being left out of pocket to the tune of thousands of pounds when they access their retirement pot. If this process could be automated and the need to fill out a complex reclaim form removed, it would significantly improve the tax system for retirees.”

The newsletter also confirmed that it has extended a number of easements introduced amid the pandemic, including APSS105 relief at source repayment claims, until 31 March 2022.

In addition to this, it announced that the ability for scheme administrators to view a list of pension schemes they need to migrate on to the managing pension schemes service, which was previously delayed, will be available mid-to-late November.

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