Express News has reported that with Labour’s recent ascension to power, taxpayers can expect significant increases in the coming years. Adding to this burden, some individuals may even be taxed on amounts they don’t actually owe.
Every year, about 10,000 pension savers are unnecessarily forced to pay an average of £3,000 each to HMRC, with some paying up to £55,000. They then face the hassle of reclaiming this money or waiting for a refund, often long after the tax year ends. Since 2015, this issue has cost pensioners around £1.2 billion due to a glitch in HMRC’s systems. This money, rightfully belonging to the pensioners, is wrongfully collected, creating widespread frustration among those affected.
Experts are urging Prime Minister Keir Starmer and Chancellor Rachel Reeves to address this ongoing issue, initially caused by former Tory Chancellor George Osborne’s pension freedom reforms in April 2015. These reforms allow individuals over 55 to withdraw lump sums from their pensions, but HMRC applies an emergency tax code assuming monthly withdrawals throughout the year, leading to significant over-taxation.
Tom Selby, director of public policy at AJ Bell, highlighted that nearly £200 million was reclaimed in overpaid tax last year alone. He criticized the government’s failure to adapt the tax system to accommodate flexible pension access, resulting in unfair and unexpected tax bills. Selby called for an urgent review to ensure correct taxation on withdrawals.
The current system requires affected individuals to fill out one of three forms to reclaim their money within 30 days or rely on HMRC to resolve the issue by the end of the tax year. This process is particularly challenging for those on low incomes, who may have limited experience with self-assessment tax systems, and are often the ones who need the money the most.
HMRC maintains that overpaid tax is eventually refunded, but critics argue that the system should prevent such overpayments in the first place. It is now Labour’s responsibility to address this problem and ensure fair taxation for all, as the Tories failed to rectify this issue during their tenure.
