The tax authority from the Labour Party government has been slammed for billing pensioners £10,000 tax bills under an ” emergency” code.
HMRC sending ‘incredible’ demand to state pensioners for £10,000 and ‘it could get worse’
HMRC has sent shock tax bills to pensioners demanding £10,000 payments. The tax authority from the Labour Party government has been slammed for billing pensioners £10,000 tax bills under an ” emergency” code.
Around 11,700 pensioners managed to get back £5,000 or more from HMRC in refunds after the overcharge issue. 60,000 retirees successfully claimed refunds in 2023/24, a 20 per cent jump on the previous year.
It comes after the introduction of pension freedoms in 2015, which allowes defined contribution pension holders in the UK to access their savings from age 55 from April 6, 2015. Key changes included being able to take the whole pot as cash (with 25% tax-free), taking flexible income through “flexi-access drawdown,” or buying a lifetime annuity.
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But HMRC has in some cases wrongly applied an “emergency” tax rate, wrongly treating one-off pension withdrawals as if they were ongoing monthly income. Approximately 11,700 pensioners successfully reclaimed £5,000 or more from the tax authority.
Within this group, 2,400 individuals received refunds exceeding £10,000 each, highlighting the scale of overcharging affecting retirement savers. The average refund amount climbed to £3,342 in 2023-24, representing a £280 increase or nine per cent rise compared to the previous year’s figure of £3,062.
The top 25 cases averaged £106,900 each. Clare Moffat, pension expert at Royal London said: “It’s incredible to think that some people withdrawing from their pension for the first time were entitled to emergency tax refunds in excess of £100,000.”
Ms Moffat warned that these unexpected tax bills frequently arrive as “a massive shock”.
Ms Moffat explained that this upcoming change means “more and more people are considering dipping into their pension pots while they are alive” to make substantial lifetime gifts to family members.
She predicted that increased large lump-sum withdrawals will “likely mean an even greater spike in emergency taxes on those withdrawals.”
The pension expert concluded that “the problem of emergency taxes isn’t going away, and there’s a chance it could get worse”.
A spokesman for HMRC said: “Ultimately, nobody overpays tax as a result of taking advantage of pension flexibility. We will repay anyone who pays too much because they’re on an emergency tax code and individuals can claim a repayment much earlier if they wish.”