The Month One Tax Code Trap.
The main reason for tax overpayment is the HMRC’s month one tax code. When someone starts withdrawing money from a private pension, HMRC often uses an emergency code. This code treats the first withdrawal as a regular monthly income. As a result, a large lump sum can be taxed like a regular payment, leading to too much tax being taken. This causes a UK pension tax overpayment, especially for people accessing flexible pensions for the first time.
Tax Code Errors.
Pension tax code errors happen often. With more people accessing their pensions flexibly, HMRC’s systems can struggle to keep up with changing income patterns. If your tax code starts with 1257L and has a “W1” or “M1” suffix, you are likely on an emergency tax basis. These codes mean the system is treating each month separately. These errors are common for first-time pension withdrawals.
Claiming back the overpaid tax.
You can usually take up to 25% of your pension pot tax-free. The remaining 75% is taxable as income. Refunds are typically processed within 30 days for in-year claims. You'll need details of your withdrawal, tax deducted, and your P45 if you have withdrawn all your pension to start a claim.
Free refund eligibility check
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Online or on the phone
Start and complete your refund claim application online or on the phone. Whichever way you feel most comfortable to suit your needs..
Share document's
We ask you to share documents relating to your claim. We then review your case file and make you aware if we feel you have a strong case for a refund.
Claim decision
Once our checks are complete, we will notify you if your application meets the criteria to claim a tax refund within 30 minutes during working hours..