If money leaves a UK registered pension outside HMRC’s authorised routes, the unauthorised pension payments charge applies at a flat 40% of the amount withdrawn, and it can rise to a combined 55% once withdrawals cross a set threshold. The charge falls on you as the recipient, sits separately from your normal income tax, and applies whether the mistake was yours, your scheme’s, or a scammer’s. You report and pay it through Self Assessment.
What Makes a Pension Payment Unauthorised
The Finance Act 2004 lists every kind of payment a registered pension scheme is allowed to make. Anything outside that list is unauthorised by default, whether or not you or the scheme administrator realised a rule was being broken.1GOV.UK. Pensions Tax Manual PTM132000 – What Is an Unauthorised Payment
The situations that most often trigger the charge are:
- Taking money before the normal minimum pension age of 55, without qualifying for an ill-health exception. That age rises to 57 on 6 April 2028.2GOV.UK. Increasing Normal Minimum Pension Age
- Receiving a tax-free lump sum above the permitted limit. Since April 2024, the pension commencement lump sum is capped at £268,275 for most people, with total lump sums measured against a lump sum and death benefit allowance of £1,073,100.3GOV.UK. Abolition of the Lifetime Allowance
- Any loan from the scheme to you, a family member, or a connected business.
- Death benefit payments that don’t meet the criteria for authorised beneficiary payments.
- Payments to a sponsoring employer beyond what the rules permit.
How the 40% Charge Works
Every unauthorised payment carries an income tax charge of 40% of its value, at a flat rate.4GOV.UK. Pensions Tax Manual PTM131000 – Unauthorised Payments Essential Principles Your marginal rate doesn’t matter. If you normally pay no tax, you still owe 40%. If you’re an additional-rate taxpayer, it’s still 40%. A £50,000 unauthorised withdrawal produces a £20,000 charge on its own, sitting on top of any ordinary income tax owed on your other earnings.
The charge functions as a clawback of the tax relief the government gave when the money was originally paid into the pension, which is why the rate is fixed rather than tied to your income.5legislation.gov.uk. Finance Act 2004 Section 208 It applies equally to a £500 payment and a £500,000 one.
When the Rate Rises to 55%
Once unauthorised payments from a single scheme reach 25% of the value of your rights in that scheme, an extra 15% surcharge is added, taking the total to 55%.
The threshold is measured over a surcharge period. That period starts on the date of the first unauthorised payment and runs for 12 months, or until the 25% line is crossed, whichever happens first. If you cross the line, every unauthorised payment made inside the surcharge period becomes a surchargeable payment, and each attracts the full 55%.6HM Revenue & Customs. Notes on Estate Pension Charges SA923
The distinction is not just academic. On the Self Assessment return, unsurcharged and surcharged payments go in different boxes, and misclassifying them produces the wrong tax figure.
If You Were the Victim of a Scam
Many unauthorised payments arise from pension liberation scams that promise early access before 55, often described as a “pension loan” or a “legal loophole.” Cold calling about pensions has been banned in the UK since January 2019, so any unsolicited approach is a warning sign.
The important point for the tax position: HMRC has no discretion to waive the base 40% charge, even where the withdrawal was engineered by a fraudster.7Parliament.uk. Tax Bills for Pension Scam Victims The liability lands on you as the recipient regardless of intent or deception. Scam operators typically also take arrangement fees of 20% to 30% and route what’s left into high-risk or non-existent investments, so victims can lose both the pension and face a large tax bill on what was taken. Report suspected scams to Action Fraud (or Police Scotland), the FCA, and The Pensions Regulator, and check any adviser against the FCA Financial Services Register before acting.8The Pensions Regulator. Avoid and Report Pension Scams
Getting the 15% Surcharge Discharged
The base 40% cannot be discharged. The 15% surcharge can. Under sections 267 and 268 of the Finance Act 2004, you can apply to HMRC to be released from the surcharge if you can show it would not be just and reasonable for you to be liable.9legislation.gov.uk. Finance Act 2004 Section 268 The application must set out specific reasons; incomplete submissions get rejected.
Time limits are strict. You generally have until five years after the 31 January following the tax year the surcharge relates to. If HMRC has already issued a formal assessment, the window narrows to two years from the assessment date.10HM Revenue & Customs. Pensions Tax Manual PTM134700 – Application for Discharge from the Unauthorised Payments Surcharge A refusal can be appealed, first internally at HMRC and then to a tribunal. A trustee or guardian can apply for someone who lacks capacity.
Reporting and Paying Through Self Assessment
The charge is declared on the Additional Information pages of your Self Assessment return, in the section headed “Pension Savings Tax Charges.” You’ll need the gross amount of the payment, the date it was made, and the scheme’s Pension Scheme Tax Reference (PSTR).
For the 2025-26 return, box 13 is for unauthorised payments that don’t attract the surcharge, box 14 is for surchargeable payments, and box 15 captures any foreign tax already paid on those amounts.11GOV.UK. HS345 Pension Savings Tax Charges 2026 If the scheme administrator has been authorised to withhold and pay the tax for you, don’t enter those amounts in boxes 13 or 14. Check that your figures match the scheme’s records before filing.
Paper returns must reach HMRC by 31 October after the end of the tax year. Online returns are due by the following 31 January.12GOV.UK. Self Assessment Tax Returns – Deadlines When paying by bank transfer, use your 11-character payment reference: your 10-digit Unique Taxpayer Reference followed by the letter “K.” The wrong reference can delay HMRC matching the payment to your account.13GOV.UK. Pay Your Self Assessment Tax Bill
Late Filing Penalties and Interest
Missing the Self Assessment deadline adds up quickly:
- An automatic £100 penalty on day one, even if no tax is owed.
- After three months, £10 a day for up to 90 days, capped at £900.
- After six months, a further penalty of 5% of the tax due or £300, whichever is greater.
- After twelve months, another 5% of the tax due or £300, whichever is greater.
Unpaid tax also accrues interest. As of January 2026, HMRC’s late payment rate is 7.75%, set as the Bank of England base rate plus 4%.15GOV.UK. HMRC Interest Rates for Late and Early Payments On a £20,000 charge left unpaid for a year, that’s roughly £1,550 in interest on top of the penalties. Both apply to the full amount outstanding, including the surcharge where relevant.
Records to Keep
Hold onto everything connected to the unauthorised payment: scheme correspondence, payment confirmation, the PSTR, and a copy of the Self Assessment return. If you filed on time, keep the records for at least 22 months after the end of the tax year the return covers. If you filed late, keep them for 15 months from the date you actually submitted.16GOV.UK. Keeping Your Pay and Tax Records HMRC can check at any point in that window, and being unable to produce the paperwork creates a problem on top of a charge that is already substantial.