Backdated Pension Payment Tax Return 2026 — Claim Your Refund

Backdated pension payment tax return can be a shock — both financially and emotionally.
For some people, it feels like winning a mini-lottery.
For others, it feels like a tax trap waiting to spring.

And it can be… if you let HMRC tax the entire lump sum in a single year.

But here’s the crucial point most articles completely miss:
You don’t have to accept the default tax treatment.
Under HMRC rules — specifically Section 569 ITEPA 2003 — you can request that backdated payments be “related back” to the tax years you were actually entitled to them.

This one step often reduces or eliminates higher-rate tax on arrears and can trigger a significant refund.

This guide explains:

• How HMRC taxes arrears by default
• Why the default treatment is often wrong
• How the “relating-back” rule legally protects your tax bands
• What forms you actually need (P55, P53Z, or a simple letter)
• Special rules for NHS McCloud Remedy and State Pension LEAP cases
• How to reclaim overpaid tax — step by step

Default Tax Treatment: HMRC Initially Taxes Everything in the Year You Receive It

When a pension provider pays you arrears — whether £500 or £50,000 — they are required to:

• Apply PAYE
• Use the current tax year’s code
• Often apply emergency tax (M1)

This means that a lump sum that relates to several previous years ends up:

• Being treated as one year’s income
• Potentially pushing you into the 40% or 45% bracket
• Taxed far more heavily than it should be

But this default isn’t the end of the story.

The Relating-Back Principle (ITEPA 2003 s.569): Your Right to Correct the Tax Year

This is where the critical correction comes in.

Under HMRC statutory rules:

Backdated pension income is legally taxable in the year it was entitled, not the year it was paid.

This applies to:

• NHS Pension Scheme
• Teacher’s Pension
• Civil Service Pension
• Armed Forces Pension
• State Pension LEAP arrears
• Most public service pensions

What this means:

Instead of being taxed on an entire £12,000 arrears payment in 2025/26…
You can distribute it across the years:

• £3,000 relates to 2021/22
• £3,000 relates to 2022/23
• £3,000 relates to 2023/24
• £3,000 relates to 2024/25

Because each year has its own Personal Allowance and tax brackets, relating often triggers a large refund.

How to Request “Relating-Back” from HMRC

You do not use a P55 for arrears. Do not use a P53Z unless you are cashing in a pot.
 Instead, you can send a simple letter or do a self-assessment adjustment.

Your letter should include:

• Your NI number
• Pension provider name
• Total arrears received
• A breakdown of which years the amounts belong to
• A request for HMRC to recalculate tax under Section 569 ITEPA 2003

HMRC then:

1. Reassess your tax bands for each relevant year
2. Compares what tax should have been charged
3. Issue a refund if applicable

Refunds often arrive within 4–12 weeks, depending on complexity.

Why This Matters in 2025–2026: Huge Number of Pensioners Affected

Two major events are causing record-high arrears payments:

NHS Pension “McCloud Remedy” Adjustments

Between 2025 and 2026, tens of thousands of NHS retirees are receiving:

• Recalculated service years
• Correction lump sums
• Adjusted annual pensions

These are often multi-year arrears — exactly the kind of payments HMRC allows you to relate.

State Pension LEAP Cases

DWP is still processing LEAP (Legal Entitlement and Administrative Practice) arrears for underpaid pensions.

These arrears often cover:

• Multiple tax years
• Widowed pension overruns
• Home Responsibilities Protection recalculations

Again, Section 569 applies.

Updated 2025/26 Tax Figures 

These apply for context:

Relating prevents arrears from pushing you into higher bands.

Comparison Table — 2026 Scenarios

Step-by-Step: How to Reclaim Overpaid Tax on Pension Arrears

Step 1 — Get a full breakdown

Request from your pension scheme:

• The exact dates the arrears relate to
• Monthly or annual breakdown
• Confirmation of statutory entitlement dates

Step 2 — Write to HMRC

Address it to:

HM Revenue & Customs
Pay As You Earn
BX9 1AS

Include:

• Payment amount
• Dates of entitlement
• Tax deducted
• Request for recalculation under s.569 ITEPA 2003

Step 3 — HMRC recalculates each year

They will:

• Reopen each tax year
• Apply correct allowances
• Recalculate tax due

Step 4 — Receive your refund

Refunds are usually:

• Sent via bank transfer
• Reflected in your HMRC online account

Also Check: New Tax Year 2026/27 Guide: Dates, Rules & Tips for UK Taxpayers

Worked Example: How Much You Could Save

Scenario

You receive £10,000 in arrears in 2025/26.

Provider taxes it as:

• £4,000 at 20%
• £6,000 at 40%

Total tax deducted: £2,800.

But the arrears relate to four years:

Total correct tax: £1,500

Refund owed: £1,300

FAQs

Q1. Are all pension arrears eligible for relating-back?

Most public service pensions (NHS, teachers, civil service) and State Pension arrears are eligible for relating-back under HMRC rules.
Private pensions may not qualify unless the entitlement dates are clearly fixed in your contract.

Q2. Does HMRC automatically relate back pension arrears?

No. HMRC does not automatically adjust tax for backdated payments.
You must submit a request — either a letter with a year-by-year arrears schedule or a Self Assessment amendment — to have HMRC apply the relating-back principle.

Q3. Do I need to file a Self Assessment for backdated pension payments?

You only need to file Self Assessment if:

• You already submit a Self Assessment return, or
• Your tax affairs for the affected years require amendment

Otherwise, a simple letter to HMRC is sufficient to reclaim overpaid tax.

Q4. What if HMRC refuses to relate back arrears?

It’s rare for HMRC to refuse because entitlement dates are documented by the pension scheme.
If HMRC questions your claim, provide:

• Pension statements showing entitlement dates
• A breakdown of arrears by tax year

This ensures your tax is recalculated accurately, usually resulting in a refund.

Q5. How long does it take to get a refund from HMRC?

Once HMRC recalculates your tax:

• Refunds are typically issued within 4–12 weeks
• Funds are sent directly to your bank account
• Online HMRC accounts will reflect the updated tax calculation

Conclusion: Don’t Let Default Taxation Cost You Thousands

Backdated pension payments often trigger higher-rate tax incorrectly.
But the law is on your side — and HMRC must recalculate when you request a relate-back correction.

With the ongoing NHS McCloud Remedy and DWP LEAP adjustments in 2025–2026, this issue is more relevant than ever.

If you have arrears of any size, don’t accept the default tax deduction.
Ask HMRC to apply the rules properly.

You may be owed a significant refund.

Related: Unclaimed Tax Refund HMRC: How to Check & Claim Money Owed (2026 Guide)