Pension drawdown tax refund

UnderstandTheRules

My husband has a pension drawdown, and recently withdrew £25k to purchase a car (expecting to pay 20% tax). Unfortunately the HMRC system assumes he would take out £25k each month (we wish there was enough there to do that!). This meant he was taxed at 40%, which also meant we did not have enough money for the car.
Looking at Martin's pension tips, it does say that you can apply for a refund (which he did), and that it takes around 30days, but it actually took 3.5 months!! 
He has since taken out another smaller amount, which was taxed at 40% and immediately applied for the refund, but the estimates on the HMRC site for tax refunds for this situation are now 3 months. This is because of the volume of the requests. 
We have been told there is no way around this, but surely the HMRC system should look at alternative solutions, as this is causing a lot more work for their staff, which will also delay other work in the tax system. It also means he has to take more out of his pension pot to get the amount he needs, which leaves less investment!
Any ideas of what can be done to have the government to look into this? 

Dazed_and_C0nfused

UnderstandTheRules said:

My husband has a pension drawdown, and recently withdrew £25k to purchase a car (expecting to pay 20% tax). Unfortunately the HMRC system assumes he would take out £25k each month (we wish there was enough there to do that!). This meant he was taxed at 40%, which also meant we did not have enough money for the car.
Looking at Martin's pension tips, it does say that you can apply for a refund (which he did), and that it takes around 30days, but it actually took 3.5 months!! 
He has since taken out another smaller amount, which was taxed at 40% and immediately applied for the refund, but the estimates on the HMRC site for tax refunds for this situation are now 3 months. This is because of the volume of the requests. 
We have been told there is no way around this, but surely the HMRC system should look at alternative solutions, as this is causing a lot more work for their staff, which will also delay other work in the tax system. It also means he has to take more out of his pension pot to get the amount he needs, which leaves less investment!
Any ideas of what can be done to have the government to look into this? 

Normally a (more accurate) tax code would be issued after the first payment.

Did this not happen?  Or has he taken money from a different pension?

It's very unusual for a pension payment to be taxed at 40% though, usually it's a mix of 0%, 20%, 40% and sometimes 45%.

mebu60

UnderstandTheRules said:

Any ideas of what can be done to have the government to look into this? 

Very little to nothing! A one-off or initial annual withdrawal is treated as if it's a monthly on-going payment for tax purposes then it's down to you to reclaim. You'd think it wouldn't be difficult to include a marker or code to indicate frequency but I doubt there's any government or HMRC interest in doing so otherwise it would've been done years ago. 

Linton

UnderstandTheRules said:

My husband has a pension drawdown, and recently withdrew £25k to purchase a car (expecting to pay 20% tax). Unfortunately the HMRC system assumes he would take out £25k each month (we wish there was enough there to do that!). This meant he was taxed at 40%, which also meant we did not have enough money for the car.
Looking at Martin's pension tips, it does say that you can apply for a refund (which he did), and that it takes around 30days, but it actually took 3.5 months!! 
He has since taken out another smaller amount, which was taxed at 40% and immediately applied for the refund, but the estimates on the HMRC site for tax refunds for this situation are now 3 months. This is because of the volume of the requests. 
We have been told there is no way around this, but surely the HMRC system should look at alternative solutions, as this is causing a lot more work for their staff, which will also delay other work in the tax system. It also means he has to take more out of his pension pot to get the amount he needs, which leaves less investment!
Any ideas of what can be done to have the government to look into this? 

The high rate of tax deducted on the first one-off taxable payment is an inherent feature  of the way PAYE works, PAYE being used for pensions in the same way as for earnings.  The cost and compilications of a different system for pensions would be very difficult to justify.

After the first payment from a particular pension has been made a tax code will be issued and the situation resolved in subsequent payments in that tax year and beyond.  However that does not help if there are no further payments.

dunstonh

Looking at Martin's pension tips, it does say that you can apply for a refund (which he did), and that it takes around 30days, but it actually took 3.5 months!! 

The tax reclaim takes about 3-4 weeks via Government Gateway but around 3-4 months if the paper method is used.

We have been told there is no way around this, but surely the HMRC system should look at alternative solutions, as this is causing a lot more work for their staff, which will also delay other work in the tax system. It also means he has to take more out of his pension pot to get the amount he needs, which leaves less investment!
Any ideas of what can be done to have the government to look into this? 

If you run a withdrawal (even a very small amount) in month 12 of the payroll cycle, you will get the refund that month.

squirrelpie

"Any ideas of what can be done to have the government to look into this? "

Write to your MP! And the best of luck

threlkeld53

I applied on 28.7.24 to request a tax refund on a pension drawdown, by submitting a P55 form.

On 30.9.24 I phoned HMRC to check updates to my request. A lady informed me that due to a government change, HMRC is inundated with pension drawdowns & in my particular case, I should expect the refund around 1.11.24. When I mentioned that it's probably not surprising then what with a new government and she said 'in a word it's people 'panicking'.

So it was a bit of a surprise when the refund was paid into my bank a/c on 11.10.24. 

dunstonh

threlkeld53 said:

I applied on 28.7.24 to request a tax refund on a pension drawdown, by submitting a P55 form.

On 30.9.24 I phoned HMRC to check updates to my request. A lady informed me that due to a government change, HMRC is inundated with pension drawdowns & in my particular case, I should expect the refund around 1.11.24. When I mentioned that it's probably not surprising then what with a new government and she said 'in a word it's people 'panicking'.

So it was a bit of a surprise when the refund was paid into my bank a/c on 11.10.24. 

Submitting the P55 paper form is about 3 months.  It has been that level for about 2 years. So, payment timescale is in the ballpark
Submitting via Govt Gateway is usually about 3-4 weeks. 

There is no change due to Government.  The process is exactly the same as it has been for years.   However, there is certainly an uplift in people accessing their pensions and volume is running high.  The Government may well be responsible for some of that increase.

UnderstandTheRules

we did apply through the government gateway, it still took 3.5 months. Last year he had to apply for a refund, but it only took a month. Dont know why

Albermarle

There is no change due to Government.  The process is exactly the same as it has been for years.   However, there is certainly an uplift in people accessing their pensions and volume is running high.  The Government may well be responsible for some of that increase.

Although I would say that the speculation and scaremongering in the media are more to blame.
I have not done anything and am reasonably confident this is the right decision. We shall see soon enough if I am right.......