Pension withdrawals and emergency tax

The first time you flexibly take money from a defined contribution pension, the provider usually has no tax code for you and must deduct tax using an emergency code on a Month 1 basis. That treats the payment as if you will receive the same amount every month, so a large one off withdrawal is taxed at 40% and 45% when your real liability may be far lower. You can reclaim the overpayment in year using form P55, P53Z or P50Z, or wait for HMRC to review your tax after the end of the year.

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What counts as flexibly accessing a pension?

HMRC’s PAYE Manual at PAYE76170 says you flexibly access your pension if, on or after 6 April 2015, you receive:

a payment from a flexi access drawdown fund, including a payment from a capped drawdown fund that breaks the cap
an uncrystallised funds pension lump sum (UFPLS)
a payment under a flexible annuity contract
certain scheme pensions from small money purchase schemes, and certain stand alone lump sums.

Whatever form they take, the taxable parts are pension income and normal PAYE rules apply. With an UFPLS, 25% of each payment is normally tax free and the rest is taxed at your marginal rate. With drawdown, the tax free pension commencement lump sum is paid when funds are first designated, and later drawdown payments are fully taxable (SAM110270). The tax free portion is limited by the £268,275 lump sum allowance; see the lump sum and death benefit allowance.

Why is the first withdrawal often over taxed?

PAYE76170 sets out which code the scheme must use for the first payment:

If you give the scheme a P45 dated on or after 6 April in the current tax year, it operates the code on that P45, but on a Month 1 basis.
If the scheme already pays you a pension and holds a code, it can only use that code for an extra flexible payment made at the same time.
In all other cases, including where your P45 is from the previous tax year, the scheme uses the emergency tax code on a Month 1 basis.

GOV.UK explains that on an emergency code your tax is worked out on what you are paid in that week or month only, as if you were paid the same amount every week or month of the year. Emergency codes end in W1, M1 or X, or the payslip shows NONCUM. You get one twelfth of the personal allowance and one twelfth of each tax band against the payment, which is fine for a regular monthly pension but badly wrong for a single large sum. Our page on PAYE tax codes explains the codes in more detail.

After the first payment, HMRC issues a proper code for future payments from that scheme.

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A worked example

Illustration only. Jean is 66, lives in England and her only other income is a State Pension of £12,000, which uses up most of her personal allowance. In June 2026 she takes a £40,000 UFPLS. £10,000 is tax free and £30,000 is taxable.

The provider has no code, so it uses the emergency code on a Month 1 basis. Only about £1,048 of allowance (one twelfth of £12,570) and one twelfth of the basic rate band are given, so most of the £30,000 is taxed at 40% and 45%. The deduction comes to several thousand pounds more than her real liability.
Her total income for the year is £42,000, all within the basic rate band, so her real liability is 20% of £29,430 (the £30,000 less the £570 of allowance her State Pension leaves unused), which is £5,886.
Because she has only taken part of her pot and is not taking regular payments, she can claim the difference straight away on form P55 rather than waiting until the following tax year.

The State Pension is taxable but paid without tax deducted, so it reduces the allowance available to other sources; see how the State Pension is taxed.

Which form do I use to reclaim?

HMRC uses three forms for flexibly accessed payments, depending on whether you have emptied the pot and what other income you have (PAYE94055 and SAM110270):

Form	Use it when
P55	You have taken only part of your pot, will not be taking regular payments, and the scheme cannot refund the tax
P53Z	You have taken the whole pot and have other income, such as a job or other pensions
P50Z	You have taken the whole pot, received a P45 from the scheme, have stopped working and have no other income apart from the State Pension

The P50Z cannot be used if you are claiming taxable benefits such as Jobseeker’s Allowance, contribution based Employment and Support Allowance or Carer’s Allowance, or if you expect to start a new job within four weeks; in that case a new employer will refund through payroll. Separate versions exist for death benefits: P55(DB), P53Z(DB) and P50Z(DB). Small pots and trivial commutation lump sums use form P53 instead.

You can claim online through HMRC’s “check how to claim a tax refund on your pension” service or post a printed form. GOV.UK warns that using the wrong form may delay the refund. The forms ask for estimates of all your other taxable income for the tax year, so HMRC can work out the right refund. HMRC pays by Faster Payments into a bank account in your or your nominee’s name and checks again after the end of the tax year.

If you are not UK resident, do not use these forms. HMRC directs non residents to the double taxation relief route or form R43.

What if I do nothing?

You will not lose the money. PAYE94055 says that if no claim is made, HMRC automatically reviews the position after the end of the tax year and issues a tax calculation showing any overpayment or underpayment, usually a P800. The cost of waiting is cash flow: someone withdrawing in May could wait more than a year for the refund.

What if I complete a Self Assessment return?

You can still use the in year forms. The P55 notes say HMRC will not include Self Assessment income in calculating the repayment unless you ask, that you must still pay balancing payments and payments on account when due, and that any repayment received must be included on your next return. Otherwise the overpayment is simply set against your liability when the return is filed.

Can the problem be avoided?

Not entirely, because the first payment is always taxed on a Month 1 basis. Because HMRC issues a code once the scheme reports the first payment, some people take a small first withdrawal so that larger later withdrawals are taxed on a proper code. That is a planning choice rather than an HMRC rule, and the scheme still has to apply whatever code HMRC sends.

Be aware that tax can also be underpaid. GOV.UK warns that taking a large amount can mean extra tax at the end of the year, for example where several pensions each give allowances. Flexible access can also reduce the annual allowance for future contributions to the lower money purchase annual allowance.

What mistakes come up most often?

Using P55 after emptying the pot, or P50Z while still working.
Leaving out other income, such as the State Pension, from the estimates on the form.
Assuming the provider will refund the tax itself.
Taking several large withdrawals in one tax year without checking which tax bands they will fall into.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.