Withdrew Cash from Pension? Why HMRC Just Took 40%

⚠️ 2026 Warning (MPAA): Taking taxable cash from your pension triggers the Money Purchase Annual Allowance (MPAA). This permanently slashes your future tax-free pension contribution limit from £60,000 to just £10,000. Proceed with caution if you plan to keep working.

💸 The "Welcome to Retirement" Shock

You turn 55 (or 57 in 2028). You decide to take £10,000 out of your private pension pot (SIPP) to pay for a dream holiday or renovation.

You expect to receive around £8,500 (after Basic Rate tax). But when the money hits your bank account, you only see roughly £6,000.

Where did the other £4,000 go? HMRC grabbed it.

This is not a scam; it is a notorious flaw in the PAYE system called "Emergency Tax Month 1." HMRC's computer blindly assumes you will withdraw £10,000 every single month for the rest of the year, artificially projecting you into the Super-Rich tax bracket.

Withdrew Cash from Pension?

This bureaucratic error hits thousands of retirees on their first flexible withdrawal. The good news? You do not have to wait until the end of the tax year (April 5th) to reclaim your overpayment.

Choose Your Form

Do NOT just wait. If you do nothing, HMRC might eventually refund you, but why give them an interest-free loan? Claim it back immediately using one of these three specific forms via your Government Gateway account.

Your Situation	Use Form
I took SOME money out, but left the rest invested. (Flexible Access)	Form P55 (Most Common)
I took ALL the money out (emptied the pot) and I assume I have other income this year.	Form P53Z
I took ALL the money out and I have NO other income/employment.	Form P50Z

The "Small Withdrawal" Strategy

Want to avoid this headache entirely next time? Savvy investors use a simple maneuver:

Make a nominal first withdrawal (e.g., £100). This forces HMRC to generate a tax code for that specific pension pot. Once the tax code is updated (check your HMRC App in ~2-4 weeks), make your main large withdrawal. The correct tax should now apply automatically, bypassing the emergency rate.

Chief Editor’s Verdict

HMRC is surprisingly efficient with these specific refunds. Once you submit the correct online form, the money typically lands in your bank account within 30 days.

Do not accept the lower amount. It is your hard-earned pension—claim every penny back today.

[UK Tax Disclaimer]
Tax treatment depends on your individual circumstances and may be subject to change in the future. Withdrawing taxable cash from your pension may impact your eligibility for means-tested state benefits. The "25% Tax-Free Cash" usually applies to the first 25% of the total pot, not necessarily every single withdrawal (depending on UFPLS vs. Drawdown). This article is for information purposes only and does not constitute financial advice.