If you're one of the many pensioners who has been waiting to cash in a huge part of your retirement fund, you'll hopefully be aware of the major caveat of doing so: an excessive tax bill.
This is because money you take from your pension is taxed in the same way as income, meaning big payments could be subject to higher rate tax - even if you've never earned enough to pay 40pc tax before.
And there's a further sting in the tail of pension withdrawals that savers will have to weather.
Last week this newspaper revealed that every saver who uses the new pension freedoms will face inaccurate tax charges and will need to enter negotiations with HMRC to rectify the estimations.
It emerged that people must supply a P45 to have the correct amount deducted on their withdrawals. But these forms are only issued when people leave work or a pension has been paid in full.
Those still employed or who retired before the start of the tax year will be unable to show a valid document and so must pay an "emergency" levy, HMRC confirmed.
The vast majority of people who cash in their funds will pay too much tax, it is understood. Even people withdrawing small amounts may have 45pc tax applied to their fund.
The taxman has confirmed that everyone who pays too much tax will be refunded what they are owed - but not until the end of the tax year. If you want a refund sooner, you will need to fill in an additional form.
To complicate things further however, not everyone will need to fill in the same one. Here we walk you through the different forms and tell you everything you need to know so you can get back the tax you're owed.
How much tax should I be paying on my pension withdrawals?
In terms of the income you can recieve every year, everyone is entitled to £10,600 tax free, and then they have to pay 20pc on everything up to £42,385, 40pc on anything above that, and then 45pc on everything over £150,000. Earnings over £100,000 also gradually lose their £10,000 personal allowance, raising the "composite" level of tax for higher earners even further.
If you've got other earnings then these also need to be taken into account when calculating how much tax you should pay. For example, if you have no other income and you take £10,000 from you pension, you may only get £4,500 (45pc) upfront if you have been made to pay emergency tax. But you will be able to get all of this back from HMRC as you won't actually owe them any tax.
How do I know if I'm owed tax on a pension withdrawal?
It is thought that most people will be owed a tax rebate as a result of taking out pension money. This is because most people will have to pay emergency tax, which is levied at 45pc when they take a chunk out of their pension. Ask your pension provider whether this has been levied.
There are three different forms. Which should I fill in?
If you took your whole pension pot at once and you have no other income then you need to fill in a form called a P50Z.
If you took your whole pension pot at once and you have other taxable income, you need to fill in a form called a P53Z.
If you took a chunk of your pension pot (but not the whole thing) and you're not taking another flexible payment before April 6, 2016, you need to fill in a form called a P55.
Where can I get the forms?
To find the forms online visit www.gov.uk/claim-taxrefund/you-get-a-pension, or get them from your local Post Office.
If I fill in the form how long will the refund take?
Up to 30 days.
What happens if I don't complete the form?
If taxpayers don't fill in the forms to ask for a refund in a given year, HMRC will make repayments at the end of the tax year when it checks whether customers within the PAYE system have paid the right amount of tax.
If too much or too little has been paid a tax calculation will be made and a P800 form will be produced and sent out to you. This is part of the normal PAYE process and has happened each year since the system was introduced in 1944. It is known as "End of Year Reconciliation".
How is my pension firm involved in the process?
Pension funds don't have a say about whether the tax is refundable or not, neither does the employer.
How is the tax on pension withdrawals calculated in the first place?
HMRC divides your allowances into 52 weekly - or 12 monthly equal parts and sets them against your weekly or monthly pay. This spreads the allowance - known as free pay - evenly throughout the year. The employer or pension fund carries forward any tax-free allowances not used in one week or month to increase the free pay in the next pay period, so reducing your tax bill for that period.
However, unless you have presented your pension firm with a P45 form, a pension fund assumes that if you take £10,000 from your pension fund, your total income is £120,000.
A P45 form is a certificate given to an employee at the end of a period of employment, providing details of your tax code, gross pay, and the tax paid for that year.
It is thought that most people will be owed a rebate.
Have you had a problem with your pension or tax affairs? We want to hear about it. Email katie.morley@telegraph.co.uk
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