HM Revenue & Customs (HMRC) has over-taxed pension savers by more than £400m since the start of pensions freedoms in 2015, new figures issued yesterday revealed.
The additional money that has been wrongly taken is income tax which is deducted when individuals make lump sum withdrawals from the pension fund after the age of 55.
It is not unusual for HMRC to tax on the basis of an ‘emergency’ tax code, this results in large overpayments which then has to be recovered by individual taxpayers, who need to complete one of three different claim forms, depending on their circumstances.
When analysing data for the whole period since the second quarter of 2015, when pensions freedoms was introduced, HMRC has had to pay back tax on 174,000 occasions, with the total amount repaid now standing at £402m.
In the fourth quarter of 2018 alone, HMRC had to repay over £30m to 13,000 people.
Commenting on the statistic, Royal London pension specialist Helen Morrissey said: “HMRC is utterly shameless in the way that it over-taxes people and then expects them to claim a refund. The system should be run for the convenience of taxpayers, not the convenience of HMRC. It is time that this over-taxing spree was brought to an end.”
AJ Bell senior analyst, Tom Selby, commented: "HMRC’s insistence on applying emergency tax to hard-working savers’ first pension freedoms withdrawals continues to harm those who access their own money flexibly.
“What these figures don’t capture is those who don’t fill out the forms. Given 150,000 pensions per quarter have been accessed for the first time, it appears far more people either don’t know they have been penalised or are unsure how to go about getting the money back."
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