Answers · UK 2025/26

Why was I emergency taxed on my pension withdrawal and how do I reclaim it?

Pension providers often apply an emergency "Month 1" PAYE tax code to your first flexible withdrawal, because they lack an up-to-date tax code from HMRC. This assumes the same amount will be withdrawn every month for a year, typically over-taxing a one-off payment significantly. You can reclaim the overpaid tax faster using HMRC forms P55, P53Z, or P50Z, rather than waiting for automatic year-end reconciliation.

Last updated: 1 July 2026Last reviewed: 1 July 2026How we verify

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One of the most common and frustrating surprises for people taking money flexibly from their pension for the first time is seeing a much larger-than-expected tax deduction on the payment. This is almost always due to emergency, or "Month 1," PAYE tax coding, not an error by the pension provider. **Why it happens** When you take your first taxable withdrawal from a pension via drawdown or UFPLS, your pension provider is legally required to operate PAYE on the taxable 75% portion. If HMRC has not yet issued the provider with your correct, up-to-date tax code (which is common for a first withdrawal, since HMRC may not know about the new pension income source yet), the provider must use an "emergency" Month 1 tax code on a non-cumulative basis. **Why this over-taxes you** Month 1 (non-cumulative) tax coding treats each payment as if it were 1/12th of your annual income, repeated every month for a full year -- rather than recognising it as a genuine one-off withdrawal. This pushes a much larger share of the payment into higher tax bands than would apply if the true annual picture were used. **Worked example** Emma takes a one-off £30,000 UFPLS withdrawal, with £22,500 (75%) taxable. Under Month 1 emergency tax, HMRC's system assumes she will receive £22,500 every month for the rest of the year (implying annual taxable income of £270,000), pushing most of the withdrawal into the 40% and 45% tax bands. She might be taxed roughly £9,000-£10,000 on the payment, when her actual annual tax liability (assuming no other income) would be far lower -- perhaps £2,000-£3,000. **How to reclaim the overpayment** Rather than waiting for HMRC to automatically correct this at the end of the tax year (which can take many months), you can proactively reclaim the overpaid tax using the correct short-form: - **Form P55**: for people who have taken a partial withdrawal and are NOT taking regular further withdrawals and are NOT receiving other taxable income from the same pension that year. - **Form P53Z**: for people who have emptied their pension pot entirely and are receiving other taxable income (such as employment or another pension) in the same tax year. - **Form P50Z**: for people who have emptied their pension pot entirely and have no other taxable income that year. These forms can usually be submitted online via your Government Gateway account, and HMRC aims to process the refund within around 30 days, much faster than waiting for the automatic year-end reconciliation. **Avoiding it next time** Once HMRC has issued your provider with a correct, cumulative tax code (usually after the first withdrawal and any reclaim), subsequent withdrawals in the same tax year are normally taxed correctly at source, without needing a further reclaim.