Accessing your private pension pot early could be classed as tax avoidance, HMRC has warned
The government department posted the warning on their social media accounts(Image: Getty Images)
HM Revenue and Customs (HMRC) has issued an urgent reminder to anyone thinking of accessing their private pension pot. The government department is urging people to think twice before engaging in arrangements that promise tax-free or early access to a private pension pot.
This is due to many advertised schemes actually being disguised tax avoidance, according to HMRC. Engaging with these arrangements could result in life-changing financial penalties, leaving you with significantly less money for your retirement than you planned.
Posting on social media, the department said: “Think twice before accessing your private pension pot. It may count as tax avoidance and could end up costing you more than you expect.”
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It comes as HMRC has seen an increase in sophisticated schemes marketed to individuals as clever financial planning in recent years. These schemes often target people looking for flexibility or those concerned about their current tax liabilities.
Promoters typically use social media, professional-looking websites, and unsolicited calls to suggest they have found legal loopholes or unique investment structures. However, these schemes may end up being classed as tax avoidance, HMRC warns.
It advises that to protect your savings, you must be able to identify the signs of a suspicious pension arrangement. You should be wary of any scheme that promises early access or claims you can unlock your pension before the age of 55 without significant tax consequences.
Other warning signs include suggestions of recycling, where you take a tax-free lump sum and immediately reinvest it back into a pension specifically to generate additional tax relief.
You should also be cautious of schemes that use complex offshore structures or move your funds through multiple jurisdictions and loan arrangements that have no clear commercial purpose.
Promoters often charge high administration fees and take a massive cut of your savings, sometimes up to 30%, leaving you with the legal risk while they take the profit.
Under the UK tax system, you are ultimately responsible for your own tax affairs; even if a professional promoter tells you a scheme is compliant, you will be the one held liable for any unpaid tax and penalties.
Before making any changes to your pension, you should consult the Financial Conduct Authority register to ensure your advisor is regulated. You can also access free, impartial guidance from MoneyHelper, the government-backed service designed to protect savers.