Latest news with #LauraPomfret
Wales Online
2 days ago
- Business
- Wales Online
BBC expert HMRC tax £2,900 alert over pensions mistake
BBC expert HMRC tax £2,900 alert over pensions mistake In just three months of this year £44 million was paid wrongly due to pensioners being placed on emergency tax A financial expert on BBC's This Morning Live has revealed a simple monetary trick that could help individuals avoid being hit with a 'super tax' by HMRC over their pensions. Finance expert Laura Pomfret joined presenters Helen Skelton and Gethin Jones on the popular programme, where she discussed how people are being heavily impacted by being incorrectly placed on an emergency tax code. The issue arises when individuals, entirely within the law, access their pension lump sum early. Often, this is a one-off sum used to fund a significant purchase such as home improvements. However, HM Revenue and Customs assumes the person will withdraw the same amount each month, potentially leading to thousands in unnecessary tax payments. Ms Pomfret highlighted that in the first quarter of 2025, £44 million needed to be reclaimed by over-55s who had overpaid to HMRC. She elaborated: "To put that in context, it's around 15,000 people and an average of £2,900 each. This isn't a little bit of tax that's going off to HMRC. It's a lot." "This situation arose because, as you may recall, we had quite a significant change in the pensions industry 10 years ago. It was the introduction of pension freedoms, which gave you the liberty to access chunks of your cash that was in your pension and withdraw it flexibly. However, this has meant that people have been inadvertently overtaxed with these withdrawals." Article continues below Coletta Smith, the BBC's Cost of Living correspondent, outlined: "Crucial thing is that the 1st 25% of whatever you take out is tax free. Anything above that, you get taxed on. And what happened was that HMRC didn't change the rules that they had when this new freedom was introduced." She further explained: "So over the last decade, when people drew down some money from their pension. The tax man looks at that, say you take out £5,000 pounds one month, and that's all you're going to take out for that year. But the tax man assumes that that's month one and that every month you're going to be taking out £5,000 pounds, and that pushes you over the limit as a result. "So what happens is you get given an emergency tax code, that means that you are taxed at a much higher rate as a result and you have to reclaim as a consequence, and that's the process that people have been having to go through up until this point." When Helen queried the current status, Ms Pomfret responded: "So it has changed a little bit since then, so in April the government introduced um uh a better tax code process, which means that people taking regular income out of their pension get the correct tax code faster, ideally within a month rather than waiting until the end of the tax year. But it still doesn't help those people making these one-off withdrawals." Content cannot be displayed without consent She outlined a scenario involving a 60 year old withdrawing a £10,000 lump sum and being assigned an emergency tax code by HMRC. She explained: "This means it's treated as though he's going to do £10,000 every single month not just a one-off. So he's going to be taxed as though he's taking out £120,000. She said he could be taxed as much as 40 per cent." Ms Pomfret then highlighted how to recognise if you're paying emergency tax: "You need to know the tax code that you're actually on. It would either have a W1, and M1 or an X on the end if it's an emergency tax code." She noted that although HMRC will eventually rectify the situation, the individual might have to wait until the end of the tax year. However, there is an option to claim the tax back within 30 days using a specific form. Helen Skelton inquired: "What's this about £1 to protect your pension?" Ms Pomfret replied: "If you think about Arthur's situation he wants to withdraw a chunk, so what we want Arthur to do is withdraw a small amount first and let's pick £1. Article continues below "By doing so as the initial withdrawal instead of the £10,000, this action would activate the system allowing him to check the tax code set by the pension provider and determine its accuracy. If it's incorrect, there's the opportunity to amend it before proceeding. Once the correct tax code is established, then Arthur can confidently withdraw the larger sum, knowing it will be taxed properly."
The Independent
2 days ago
- Business
- The Independent
Finance expert reveals £1 hack that could save pensioners from paying too much tax
A finance expert has shared a £1 hack that could stop pensioners from overpaying in tax. In the first three months of 2025, over-55s have been forced to reclaim £44m in overpaid tax on their pension withdrawals. Speaking on BBC Morning Live on Wednesday (11 June), Laura Pomfret said if you want to withdraw a chunk of your pension, first take out a small amount - as little as £1 - out first. This will allow you to receive a tax code much faster - enabling you to check if it is correct before making a larger withdrawal. 'Once it's correct you can take that larger sum out and know that it's going to be taxed properly', she said.
