What Is Emergency Tax on Pensions?
Emergency tax is a temporary tax rate applied by pension providers when they do not have a valid tax code from HMRC for your pension withdrawal. It is not a penalty or a special pension tax – it is simply the standard income tax system operating without full information about your other income and allowances.
When you make your first withdrawal from a pension, your provider does not know how much other income you earn, whether you have used your Personal Allowance elsewhere, or what tax band you should be in. Without a tax code from HMRC, the provider must use an emergency tax basis, which typically results in significantly more tax being deducted than you actually owe.
Emergency tax on pensions affects thousands of people each year. HMRC has refunded hundreds of millions of pounds in overpaid pension tax since the pension freedoms were introduced in 2015. The good news is that reclaiming any overpaid tax is straightforward, though it does require you to take action.
How Emergency Tax Is Calculated
Pension providers typically apply emergency tax on a Month 1 (or Week 1) basis. This means your withdrawal is taxed as if it were your income for just one month (or one week), with no reference to what you have earned or may earn in other months of the tax year.
On a Month 1 basis for 2026/27, the calculation works as follows:
- You receive 1/12th of the Personal Allowance tax-free: £1,047.50
- The next £3,141.58 (1/12th of the basic rate band) is taxed at 20%
- The next £6,241.58 (1/12th of the higher rate band from £50,271 to £125,140) is taxed at 40%
- Any amount above £10,430.66 is taxed at 45%
Emergency Tax Example: £20,000 Withdrawal
Suppose you withdraw £20,000 from your pension. After the 25% tax-free element (£5,000), the taxable portion is £15,000. Under emergency tax on a Month 1 basis:
| Portion of Taxable Amount | Rate | Tax |
|---|---|---|
| First £1,047.50 (monthly Personal Allowance) | 0% | £0 |
| Next £3,141.58 (monthly basic rate band) | 20% | £628.32 |
| Next £6,241.58 (monthly higher rate band) | 40% | £2,496.63 |
| Remaining £4,569.34 | 45% | £2,056.20 |
| Total emergency tax deducted | £5,181.15 |
If your only other income is the State Pension of £11,973, your actual tax liability on this £15,000 taxable withdrawal would be around £3,000 (all at the basic rate of 20%). That means you have been overtaxed by approximately £2,181 – money you can claim back from HMRC.
Why Do Pension Providers Use Emergency Tax?
Pension providers are legally required to deduct income tax before paying you. They use the PAYE (Pay As You Earn) system, just like employers. However, when you first access your pension, the provider does not have a tax code from HMRC because HMRC does not yet know you are taking pension income.
The provider must apply the emergency tax code until HMRC issues a proper code. Common emergency tax codes you might see on your pension payment slip include:
- 1257L M1 – Emergency code on a Month 1 (non-cumulative) basis. Gives you 1/12th of the Personal Allowance for each payment period
- 1257L W1 – Same as M1 but calculated on a weekly basis
- BR – All income taxed at 20% basic rate, no Personal Allowance given. Used when HMRC knows you have a Personal Allowance elsewhere
- 0T M1 – No Personal Allowance given, taxed on a Month 1 basis. This results in the highest amount of tax being deducted
How to Reclaim Overpaid Emergency Tax
There are several ways to reclaim tax overpaid on pension withdrawals. The method depends on whether you plan to make further withdrawals in the same tax year.
Option 1: Wait for HMRC to Issue a Tax Code
After your pension provider reports the payment to HMRC (usually within a few weeks), HMRC will issue a proper tax code. If you make further pension withdrawals in the same tax year, the new tax code should correct the overtaxation on a cumulative basis, effectively refunding the overpaid amount through reduced tax on future payments.
This is the easiest option if you plan to take regular withdrawals, but it can take several weeks and relies on HMRC processing your information promptly.
Option 2: Claim Using HMRC Form P55
If you have taken a pension payment but are not emptying your pension and not planning regular withdrawals, use form P55 to claim a refund. You will need:
- Your National Insurance number
- Details of the pension payment received (gross amount, tax deducted, tax-free amount)
- Your P45 from the pension provider (if issued) or details from your payment statement
- Your estimated total income for the tax year from all sources
You can submit form P55 online through GOV.UK or download a postal version. For a detailed walkthrough, see our guide on P55 and P50Z forms.
Option 3: Claim Using HMRC Form P50Z
If you have taken your entire pension pot as a lump sum and have no further payments expected from that pension, use form P50Z. This form tells HMRC you have emptied your pension, allowing them to calculate the correct tax liability and issue a refund for any overpayment.
Option 4: Claim Using HMRC Form P53
Form P53 is used specifically for reclaiming tax on trivial commutation lump sums (small pots under £10,000) or winding-up lump sums. If your withdrawal was under the small pot rules, this is the correct form to use.
Which Form Should You Use?
| Your Situation | Form | Submit Online? |
|---|---|---|
| Partial withdrawal, pension still has money | P55 | Yes |
| Emptied your entire pension pot | P50Z | Yes |
| Trivial commutation or small pot lump sum | P53 | Yes |
| Multiple pensions, complex situation | Self Assessment tax return | Yes |
How Long Does a Pension Tax Refund Take?
HMRC aims to process pension tax refund claims within 30 days of receiving a completed form. In practice, the timeline varies:
- Online claims (P55 or P50Z) – Typically processed in 2–4 weeks. Refund sent by cheque or BACS transfer
- Postal claims – Can take 4–6 weeks or longer during peak periods (April to July is especially busy)
- Automatic correction via tax code – Usually takes effect within the next 1–2 pay periods after HMRC issues the new code
- End of tax year reconciliation – If you do not claim during the year, HMRC will reconcile your tax after the tax year ends (usually June–November) and send you a P800 calculation with details of any refund
How to Avoid Emergency Tax in the First Place
While emergency tax on the first withdrawal is often unavoidable, there are strategies to minimise its impact or avoid it altogether.
1. Make a Small Initial Withdrawal
Consider making a small first withdrawal (perhaps £100 or £1,000) to trigger HMRC to issue a tax code. Once the code is in place (which typically takes 2–4 weeks), your larger withdrawal will be taxed at the correct rate. The small initial withdrawal will be overtaxed, but the overpayment will be modest and can be reclaimed or offset automatically.
2. Ask Your Provider to Request a Tax Code
Some pension providers will proactively contact HMRC to request a tax code before processing your first withdrawal. Ask your provider if they offer this service. It can take several weeks, so factor this into your planning if you need the money by a specific date.
3. Spread Withdrawals Across Tax Years
If you are taking a large sum, consider splitting it across two tax years. This not only reduces the emergency tax impact on each individual withdrawal but also spreads your taxable income, potentially keeping you in a lower tax band overall. For broader withdrawal strategies, see our guide on sustainable withdrawal rates.
4. Use UFPLS Instead of a Large Lump Sum
Uncrystallised Funds Pension Lump Sums (UFPLS) can be taken in smaller ad-hoc amounts, each with 25% tax-free. While the first UFPLS will still attract emergency tax, subsequent ones should benefit from a proper tax code. Learn more about your options in our guide on 25% tax-free pension cash.
Emergency Tax and Flexi-Access Drawdown
If you set up a flexi-access drawdown arrangement and take your 25% tax-free cash (PCLS) only, no emergency tax applies to the tax-free portion. Emergency tax only comes into play when you take taxable income from your drawdown pot.
For regular monthly drawdown payments, the emergency tax code will typically be corrected after the first payment. Subsequent monthly payments will then be taxed cumulatively, which should result in the correct amount of tax being deducted going forward. Any overpayment from the first month will be offset against the tax due in the following months.
What Happens if You Do Nothing?
If you do not actively reclaim overpaid emergency tax, HMRC will eventually reconcile your tax position. This happens in one of two ways:
- During the tax year: If you make further pension withdrawals, HMRC should issue a cumulative tax code that corrects the overtaxation automatically
- After the tax year ends: HMRC will reconcile your total income and tax paid, then send you a P800 calculation (usually between June and November). If you have overpaid, the P800 will tell you how to claim a refund
However, relying on HMRC’s automatic reconciliation means you could wait up to 18 months to get your money back. It is always better to take proactive steps to reclaim overpaid tax rather than waiting.