HMRC is reimbursing 60,000 retirees up to £100,000 after overcharging tax-free lump sums. The average refund in 2023-24 was £3,332, with a handful of pensioners awarded sums exceeding £100,000.
Pensioners are allowed to withdraw as much as 25 per cent of their pot tax-free upon retirement, up to a cap of £268,000. Royal London data, which was found through a Freedom of Information request, shows that the number of claims increased by 20 per cent compared with 2022-23.
Clare Moffat, of Royal London, said: “It’s incredible to think that some people withdrawing from their pension for the first time were entitled to emergency tax refunds in excess of £100,000.
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“Not only do these taxes usually come as a massive shock, the unexpected tax amount can also scupper people’s carefully laid plans.”
Around 11,700 pensioners claimed back £5,000 or more, including 2,400 who were given refunds in excess of £10,000. The average value of the top 100 claims was £38,465.
The top 25 refunds averaged £106,897 in value. Ms Moffat warned: “Looming inheritance tax means more and more people are considering dipping into their pension pots while they are alive for the purpose of making large lifetime gifts to loved ones, which are exempt from inheritance tax if the giver survives for seven years after making the gift.
“A rise in large lump sum withdrawals will likely mean an even greater spike in emergency taxes on those withdrawals. So the problem of emergency taxes isn’t going away, and there’s a chance it could get worse.”
A HMRC spokesman said in a statement: “Ultimately, nobody overpays tax as a result of taking advantage of pension flexibility.
“We will repay anyone who pays too much because they’re on an emergency tax code and individuals can claim a repayment much earlier if they wish.”