Published On: Sat, Jul 29th, 2017

Pension withdrawal shock: Fury as 1000’s overcharged as HMRC apply mistaken tax code

However 242,000 people made only one withdrawal from their pension within the three months to June 2016, in response to information obtained from a Freedom of Data request. 

Savers who realise they’ve been overtaxed should fill out a kind to reclaim the cash. 

But Authorities information exhibits solely 42,700 folks did so for the Could-June interval and savers have been overcharged £26million by the taxman.

Pension firms mentioned the “Month 1” code was utilized to the “overwhelming majority” of withdrawal circumstances, suggesting 200,000 folks have paid an excessive amount of tax. 

Pension agency AJ Bell calculated 1000’s of savers might be owed tax refund price £three,099 on a median withdrawal of £10,000. 

The corporate mentioned £10,000 single withdrawals needs to be tax free if no different earnings is taken. 

AJ Bell senior analyst Tom Selby instructed the Telegraph: “These figures present the extent of the pension freedoms tax downside.

“Hundreds of people that assume they’re utilizing the brand new regime sensibly could have been hit with shock payments, and it will proceed until HMRC rethinks its draconian software of ‘Month 1’ tax.”

Mr Selby mentioned the Authorities ought to evaluate the system “as a matter of urgency”. 

Former pensions minister Sir Steve Webb known as the system “outrageous”. 

He mentioned: “It’s outrageous that in simply three months HMRC has over-taxed folks by greater than £26 million.

“It can’t be acceptable to take 1000’s of kilos per particular person in extra taxes, after which anticipate folks to have to say that cash again.

“The principles should be modified in order that solely primary fee tax is deducted and any additional tax due is collected by means of the traditional tax return course of. This may be a far fairer system.”

Greater than 250,000 of these submitting tax returns will be aged 80 or over and one in five taxpayers will be aged over 65

Sir Steve, now Royal London’s director of coverage, mentioned: “It’s stunning that over 250,000 folks aged over 80 are nonetheless being requested to take care of this paperwork every year.

“The pledge to put off tax returns altogether can’t come too quickly for this group.”

Greater than 10 million folks submitted a tax return in 2015/2016, in response to a Freedom of Data request by Royal London.

A HMRC spokesman mentioned it’s taking “1000’s” of pensioners out of self-assessment yearly. 

The spokesman mentioned: “We provide a variety of help for many who want to finish a tax return by means of our web site, helplines and residential visits.”

HMRC goals to make particular person tax evaluation largely digital by 2020. 

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