
I swear the tax system in this country is designed to make us all lose our minds. My uncle Dave just got £3,200 back from HMRC last month after they absolutely hammered him with emergency tax when he took money from his pension. "Like being mugged and then having to fill out three forms to get your own wallet back," was his exact quote. Not wrong, is he?
Between January and March this year, over 15,000 people clawed back an average of £2,881 each after HMRC overcharged them. That's a whopping £44 million in just three months that should never have left people's pockets in the first place!
The decade-long daylight robbery
For TEN YEARS now, anyone over 55 trying to use the pension freedoms introduced back in 2015 has faced this ridiculous situation. You take out a chunk of your hard-earned pension savings, and HMRC slaps an emergency tax code on it like you're suddenly earning a fortune every single month.
I remember when my colleague withdrew £20K last year to help his daughter with a house deposit. HMRC taxed him as if he'd be taking that amount EVERY MONTH for the rest of the year. He was livid.
The whole thing is absurd.
Wait... is this actually getting fixed?
Finally - and I'm not holding my breath here - HMRC has introduced changes this month that might actually solve this mess. They're promising faster tax code adjustments that should move people off those punishing emergency rates more quickly.
Jamie Clark from Quilter (who I heard speak at a finance event in 2022) seems cautiously optimistic: "The automation of tax code updates should help — but pension withdrawals are still complex, and mistakes can cost people dearly."
He also mentioned something that really hit home for me: "For those accessing pensions during a cost-of-living squeeze, any tax slip-up could derail longer-term plans. Advice is key."
Ain't that the truth. My neighbour took out £15K last winter to replace her ancient boiler that died during teh coldest week of the year, and ended up with barely £9K after the emergency tax grab. Took her months to get the rest back.
So you've been robbed... how to get YOUR money back
If you've been stung by this, there are three different forms you might need to fill in to get your cash back. Because of course there are. God forbid HMRC should make anything straightforward.
You'll need either a P55, P53Z or P50Z form depending on your situation:
• P55 if you've only taken part of your pension pot
• P53Z if you've emptied your pot but are still working or on benefits
• P50Z if you've emptied your pot and aren't working or receiving benefits
HMRC claims they'll process your refund within 30 days. In my experience? Add another couple of weeks to be safe.
The numbers are STAGGERING
Since 2015, HMRC has had to refund over £1.4 BILLION to people who were overtaxed. That's not a typo. BILLION. With a B.
Just look at how many forms they processed between January and March this year:
• 9,694 P55 forms (partial withdrawals)
• 4,409 P53Z forms (full withdrawals with other income)
• 1,171 P50Z forms (full withdrawals with no other income)
And that's just one quarter! The next batch of figures comes out in July, adn I'm betting they'll be just as shocking.
The "simple" solution nobody tells you
Here's a tip my financial advisor shared after I ranted at him about this whole system for 20 minutes (poor Mark). If you want to avoid emergency tax altogether, take smaller amounts out rather than one big lump sum.
Ridiculous that we have to game the system like this, but there you go.
I've been following this issue since my dad got caught by it in 2018. He waited 4 months for a £3,700 refund and missed out on a holiday booking deadline because of it. The look on his face when he finally got the money... mixture of relief and pure frustration.
Let's hope these new changes actually work. But I'm not counting on it.
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- The average cost of raising a child in the U.S. is estimated to be around $233,610, according to the U.S. Department of Agriculture.
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