HMRC plans to stop using emergency tax codes for new pensioners after criticism of the way they automatically deduct tax, often at the wrong tax rate, when people first start claiming their pension
From April 2025, HMRC said it will improve how tax code information is used for those people who are new to receiving a private pension, so they pay the right amount of tax faster.
This means taxpayers should receive the right pension pay quicker without a punitive automatic tax deduction, as they fall foul of unexpected and incorrect tax charges by HMRC which has caused a large number of tax code errors.
This has led to millions of pounds of tax being owed to taxpayers who have been overtaxed by HMRC, reaching more than £200m a year.
However, the tax code amendment will not affect anyone using pension freedoms to withdraw initial tax-free drawdown income from pensions unless they split their drawdown into a notional payment, followed by the actual drawdown amount.
