HMRC is warning people who access their pension that they could be hit with big tax charges if they get it wrong.
HMRC is warning people they could be stung with a 55% tax bill over their pension (Image: Getty)
HMRC has issued a warning to anyone thinking of cashing some money out of their pension pot – because you could be stung with huge and unexpected tax bil charges and surcharges.
His Majesty’s Revenue and Customs has set out that taking money out of your pension could be classed as tax avoidance if you were to do it in an ‘unauthorised’ way. In particular, HMRC says that many firms promise to give people access to their pension money early using a ‘legal loophole’ to avoid paying tax – but this is a scam. Normally, you need to be aged 55 to access your private pension, though this is rising to 57 from April 2028.
HMRC warned: “The tax rules specify the conditions that need to be met for payments to be authorised. Any payment that does not meet these conditions is an unauthorised payment.”
It says that trivial lump sums over £30,000, or continued payments after a death, or access to funds before the age of 55, could are some examples of what could usually be classed as unauthorised.
But it also warned about firms who offer to unlock your pension early: “Unscrupulous firms are using misleading information to promote personal loans or cash incentives and enticing savers to unlock their pension pots early.
“Very often these firms say there is a legal loophole they can use so you do not pay tax. There is no legal loophole and these transactions are unauthorised payments.”
HMRC says it will slap anyone who falls into this trap with three penalties:
Unauthorised payments are subject to the 3 tax charges. These are the:
- unauthorised payments charge
- unauthorised payments surcharge
- scheme sanction charge
It continues: “Where the unauthorised payment is made to or for a member it’s the member who’s responsible for paying the tax charge – even if they did not receive the payment. If the payment is made after the member’s death the person who receives the payment is responsible for paying the tax.
“Where the payment is made to or for an employer participating in an occupational pension scheme it’s the employer who’s subject to the unauthorised payments tax charge.
“The rate of the unauthorised payments charge is 40%.”
There’s also a surcharge, which when added to the charge, brings your total tax liability for the mistake to an eyewatering 55%.
HMRC adds: “This is payable by the same person who is subject to the unauthorised payments charge. It’s usually due when:
- a member gets unauthorised payments of 25% or more of their pension pot in a year
- an employer gets unauthorised payments of 25% or more of the value of the pension scheme in a year
The rate of an unauthorised payments surcharge is 15%. This means with the unauthorised payments charge the total tax rate payable is 55%.”
