HMRC has refunded almost £55m to savers who had overpaid tax on pension withdrawals in the last quarter, the largest amount since the draw down rules were changed.
Figures released by the Revenue for the period 1 July 2019 to 30 September 2019 show the department returned £54,975,821 of overpaid tax during the period. Since the pension rules were relaxed by former Chancellor George Osborne the total amount of ‘emergency tax’ on withdrawals, since repaid, stands at £535m.
When an individual withdraws money from their pension, under current tax rules, HMRC makes assumptions about how many more withdrawals they will make over the rest of the financial year. HMRC frequently assumes that people will often go into the 40% tax band – therefore taxing at that rate.
Insurance company Royal London said the latest repayment figures to suggest this will often be a false assumption. Director of policy Steve Webb said: “Even by their own low standards, HMRC have outdone themselves in the last three months, taking more than £54m of savers’ money in income tax to which they were not entitled.
“It cannot be right that tens of thousands of people each year have too much tax taken out of their pension and then have the hassle of filling in a form to get back money that is rightfully theirs.”
The Office for Tax Simplification (OTS) has called on HMRC to review the process of applying ‘emergency’ tax codes to pension withdrawals, but so far HMRC has refused to act.