Pensioners' victory as HMRC to amend emergency tax loophole affecting 11million

Yahoo

26-01-2025

Pensioners are celebrating a victory as HMRC is set to eliminate a costly tax issue that left millions of them £3,900 out of pocket. The trouble stemmed from emergency tax codes applied to state pensions by the Department for Work and Pensions (DWP).
This was implemented as part of the pension reforms in 2015, giving some pensioners an emergency tax code. It saw HMRC dedicating an extra tax from additional sums taken from a person's pension fund based on the assumption that this withdrawal would be 'month one' in a series of payments over the rest of the tax year.
Pensioners would then have to claim back the overpaid tax themselves. HMRC have now announced that, as of April, these emergency tax codes will be replaced with regular tax codes.
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This should ensure that the correct amount of tax is deducted in real time. The HMRC newsletter that confirmed this change highlighted: 'We will automatically update the tax code for customers who are on a temporary tax code and would benefit from being on a cumulative code — this means they'll avoid an overpayment or underpayment at the end of the year.
'Those who, for the first time, start to receive ongoing pension payments will benefit from this change. There is no need to contact HMRC and once a tax code has been changed we'll inform customers by letter or digitally if they've signed up for paperless in the HMRC app or online.'
It also claimed the department is currently working on a solution for people who don't turn this withdrawal into a monthly habit as they'll still be overtaxed on the first sum. Tom Selby, director of public policy at AJ Bell, told Birmingham Live: 'The Government has failed to adapt the tax system to cope with the fact Britons are able to access their pensions flexibly from age 55.
'Instead persisting with an arcane approach which hits people with an unfair tax bill, often running into thousands of pounds. And requires them to fill in one of three forms if they want to get their money back within 30 days."
While state pension payments are not directly taxed, personal or workplace pension withdrawals can be. Each person is able to take up to 25% of their pension from the age of 55 completely tax free, according to Money Helper, but taking more than this amount could incur some tax bills which is what's targeted with the emergency tax codes that will hopefully be done away with in April.