The total amount of overpaid tax on pension withdrawals has now reached almost £1.3bn
Official HMRC figures have revealed that errors in the tax system led to individuals being overcharged by £44 million due to excess tax taken when they withdrew funds from their pension pots between July and September. The issue arises because HMRC applies an excessive emergency tax rate to the first lump sum withdrawal, causing an individual to be thousands of pounds out of pocket as the system mistakenly assumes it's a regular income rather than a one-time payment.
Morrissey further commented on the distress this causes: "You can get the extra money refunded, but this is not the point. Many of these people will not have been expecting this and the extra tax bill will have come as a nasty shock." She explained: "The reason this happens is that you can be put on an emergency rate of tax whereby HMRC treats it as though that first payment will be repeated every month. You can try to mitigate this by making your first pension withdrawal a small one if possible. If you do get landed with a bill, then you can get it rectified quickly by filling out a form and getting your money back as soon as possible.
Jon Greer, head of retirement policy at Quilter, commented on the recent figures, highlighting that this remains a "substantial issue" for Britons trying to alleviate financial strain by accessing their pension funds. He remarked: "What’s particularly concerning is that we may see a sharp rise in withdrawals in the next set of data, driven by growing anxieties surrounding the upcoming budget.
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