Major change to pension rules after half a million people refunded £1.4billion
Share:
A MAJOR change to pension rules has been announced after nealry half a million people were refunded £1.4billion for being overtaxed. HMRC said that from April it will improve how tax code information is used, so that people claiming a private pension for the first time are taxed correctly.
![[One pound coins on a dictionary page defining income tax.]](https://www.thesun.co.uk/wp-content/uploads/2024/10/t2w964-dictionary-definition-income-tax-772251536_4cb5cc.jpg?strip=all&w=960)
It signals the end of a long-running issue caused by emergency tax codes applied to pension withdrawals under the pension freedoms introduced in 2015. For the past decade , anyone over 55 can access their pension flexibly, but HMRC often taxes large withdrawals as if they will be repeated monthly, resulting in overpayments.
You can start taking cash from a defined contribution (DC) scheme or personal pension when you reach 55. Usually, you can take the first 25% of your pension tax-free, and then anything after that is taxed at the usual income tax rate. But people who take large one-off lump sums on their first withdrawal from these types of pensions are taxed at an "emergency" higher rate of income tax.
This leaves retirees facing huge sums deducted from their payouts, temporarily leaving them out of pocket. The change means HMRC will move more quickly to replace these ‘emergency’ tax codes with regular tax codes. It means the correct amount of tax is deducted in real time and will help stop people from being overcharged.
In a statement, HMRC said customers did not need to make any changes to their tax coding process, as they would automatically change these codes. It added: “However, as we are systematically changing the tax codes for these customers, you will receive notices for tax codes that have been automatically adjusted as they happen.”".
