{"id":43850,"date":"2023-10-26T17:38:57","date_gmt":"2023-10-26T17:38:57","guid":{"rendered":"https:\/\/histarmar.net\/?p=43850"},"modified":"2023-10-26T17:38:57","modified_gmt":"2023-10-26T17:38:57","slug":"pension-savers-overcharged-61million-in-tax-due-to-ludicrous-quirk-of-system","status":"publish","type":"post","link":"https:\/\/histarmar.net\/world-news\/pension-savers-overcharged-61million-in-tax-due-to-ludicrous-quirk-of-system\/","title":{"rendered":"Pension savers overcharged \u00a361million in tax due to ‘ludicrous quirk’ of system"},"content":{"rendered":"

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Savers reclaimed a record \u00a361 million in over taxation on pension withdrawals in July, August and September this year \u2013 the highest three-month figure since records began.<\/p>\n

Savers are getting up to \u00a33,252 back on average after being hit with a bloated tax bill.<\/p>\n

Since 2015, HMRC has chosen to tax the first flexible withdrawal someone makes in a tax year on a \u2018Month 1\u2019 basis.<\/p>\n

This means HMRC divides one usual tax allowance by 12 and applies them to the withdrawal, landing hard-working savers with shock tax bills often running into thousands of pounds.<\/p>\n

While those who take a regular income or make multiple withdrawals during the tax year should be put right automatically by HMRC, anyone who makes a single withdrawal will likely be left out of pocket.<\/p>\n

<\/p>\n

An expert has argued that this “ludicrous quirk” of the tax system is affecting more savers than ever.<\/p>\n

As the cost of living crisis continues, many older savers are opting to withdraw from their pensions, leading them to be hit with a “with a bloated tax bill”.<\/p>\n

Tom Selby, head of retirement policy at AJ Bell said: “This forces them to go through the rigmarole of claiming their own money back has always been unfair, but it is particularly cruel given the financial challenges millions of people are facing today.<\/p>\n

\u201cIt is ridiculous the government has failed to adapt the tax framework to cope with the fact people 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.”<\/p>\n

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<\/p>\n

Despite savers reclaiming \u00a361 million in the latest quarter, it is likely the true over-taxation number will be substantially higher.<\/p>\n

In particular, people on lower incomes who are less familiar with the self-assessment process might be less likely to go through the official process of reclaiming the money they are owed. As a result, they will be reliant on HMRC to put their affairs in order.<\/p>\n

Speaking on how savers can avoid a big bill after a single withdrawal, Mr Selby suggested taking a notional withdrawal first.<\/p>\n

He said: “To potentially avoid the shock of a big over-taxation bill is by taking a notional withdrawal first. This should mean HMRC is able to apply the correct tax code to the second, larger withdrawal.<\/p>\n

\u201cAlternatively, you can fill out one of three HMRC forms and you should receive your tax back within 30 days. If you don\u2019t do this, the Revenue says it will put you back in the correct tax position at the end of the tax year.\u201d<\/p>\n