HMRC to refund overpaid tax to 3.2 million State Pension recipients

HM Revenue & Customs (HMRC) has found a historical error in how tax on the State Pension was calculated and will refund the overpayments. According to HMRC's estimates given to a parliamentary committee, around 3.2 million people will receive money, with total repayments of about £19.3 million.

What the error was

When the State Pension rises during a tax year, annual pension income should reflect one week at the old rate and 51 weeks at the new rate. In some calculations, however, HMRC applied the higher rate for all 52 weeks. This overstated annual pension income, which could mean too much tax was collected.

In a reply to a parliamentary question in August 2025, the government said the problem affected a subset of State Pension recipients, with the difference in tax typically around £5.

How refunds will work

HMRC says pensioners generally do not need to make a claim. Refunds are to be made automatically through PAYE tax code adjustments, through Self Assessment calculations or by other payment methods.

The correction covers tax years from 2020/21. HMRC explains that for earlier periods it does not have enough data to correct cases reliably and efficiently. People who believe they were affected in earlier years and have the necessary evidence can ask for an individual review.

The authority said that on 25 August (2025 r. wg listu do komisji nie jest podane w źródle) it made a change so that future annual reconciliations for people in PAYE and Simple Assessment use the correct State Pension figures.

When the money will arrive

HMRC expects to complete most corrections and repayments during the 2026/27 financial year. Polish Express, citing the authority, reports that refunds for the last six tax years will be completed in March 2027 at the earliest. Amounts will vary depending on individual circumstances.

What this means for you

This affects people who receive the UK State Pension, as well as those who help older relatives with their finances. In most cases there is nothing to do, as refunds should be made automatically. It is still worth watching for letters from HMRC and changes to your tax code. Anyone who suspects an overpayment for years before 2020/21 should contact HMRC themselves to ask for a review and prepare evidence.