Have You Paid Too Much Tax on Your Pension?


Around two hundred thousand savers are believed to have paid too much tax using the new pension freedoms. This is available to savers who are over the age of fifty five. The problem is that many of these saves have no idea that they have paid too much on tax, which is why so many pension advisors are asking clients to thoroughly check on the tax they have paid.

One-Off Withdrawals

The reasons that many of the people using this pension freedom is any one-off withdrawal is being seen the first regular pension payments. This means that HMRC is generating a tax code that is Month One. This means that they deduct as if the withdrawal is the first one of many and as a result, there are thousands of individuals who may have overpaid in taxes in the 2016/17 tax year.

Information provided by a Freedom of Information request showed that two hundred and forty two people made one withdrawal from their pension, as this is the most popular feature of the pension freedom new rules. Only just over forty two thousand people who were overcharged has completed the relevant forms for that period. This means that there are almost two hundred thousand who have no idea that they were overpaying on their withdrawal.

Up to date, HMRC has repaid almost £27 million from April to July this year. This was to those who realized that they had overpaid and had taken relevant steps to rectify the situation. This means that HMRC are not rectifying the problem themselves. Therefore I recommend that anyone who took a single withdrawal from their pensions get in contact with a professional financial advisor to identify if they have overpaid and take the relevant steps to rectify the situation quickly and effectively.

Going forward the rules need to be changed so only the basic tax rate is deducted and addition tax be collected via the normal tax return process, this way clients are more inclined to spot any problems and have them rectified.

Professional Advice

With so many people having already overpaid on taxes for their one-off withdrawals, we recommend that any clients who want to consider taking advantage of this opportunity discuss the matter with a professional financial advisor before taking any steps to ensure that they only pay the basic tax required.

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