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HMRC overtaxing savers on pension withdrawals

Thousands of over-55s who have made a one-off withdrawal from their pension may have paid too much tax in 2016/17, according to a Freedom of Information request.

Research by the Telegraph suggests as many as 200,000 savers have overpaid, many of whom will be unaware they are paying over the odds.

HMRC is not proactively contacting those affected, with only 42,700 savers attempting to reclaim deductions relating to the 2016/17 tax year.

Steve Webb, a director at insurer Royal London, said:

“It cannot be acceptable to take thousands of pounds per person in excess taxes, and then expect people to have to claim that money back.

“The rules need to be changed so that only basic-rate tax is deducted and any extra tax due is collected through the normal tax return process. This would be a far fairer system.”

Savers must fill out 1 of the following forms to reclaim tax on their withdrawals, depending on whether they accessed cash from a defined benefit or defined contribution scheme.

From defined benefit schemes:

• self-assessment tax return – on lump sums
• P53 – for those who don’t fill in self-assessment tax return.

From defined contribution schemes:

• P50Z – if you withdrew your pension pot and have no other income in the tax year
• P53Z – if you withdrew your pension pot and have other sources of income in the tax year
• P55 – if you withdrew part of your pension pot and are not receiving regular payments.

Contact us if you think this affects you.

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Home Office to assess EU workers

Home secretary Amber Rudd insists small businesses “will continue to attract” skilled foreign workers after the UK leaves the EU.

Ms Rudd reassured businesses there will be a transitional period when it comes to employing foreign workers in the UK after Brexit.

From March 2019, EU workers moving to the UK will have to register until a permanent post-Brexit immigration policy is implemented.

The home secretary has commissioned the migration advisory committee to consider the economic impact of EU workers in a bid to shape an evidence-based future migration policy.

Mike Cherry, chairman at the Federation of Small Businesses, said:

“Skills and labour from the EU play an important role in many small businesses, with 1 in 5 small employers having EU workers.

“The migration advisory committee needs to engage with the small business community to address the concerns of small employers and the self-employed.”

However, the Confederation of Business Industry (CBI) said businesses “urgently” need to know what any transitional period would look like after Brexit.

Josh Hardie, deputy director-general at the CBI, added:

“Given the importance of mobile skills and labour for the UK economy, firms will want the review to move at pace and include the views of all sectors.”

Contact us to discuss how Brexit may affect you. 

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Pension freedoms payments hit record high

The amount of money people withdrew from their retirement savings under pension freedoms hit a record high in Q2 2017.

According to figures from HMRC, 200,000 people took out flexible payments worth £1.86 million in the 3 months to 30 June 2017.

This was the largest quarterly withdrawal on record after pension freedoms were introduced in April 2015.

Additional research from Scottish Widows, who polled 2,697 people, found 62% who accessed their funds flexibly were between 55 and 60 years old. 

When asked why they were accessing their pension, the main responses were:

  • 25% “wanted the cash”
  • 11% wanted to pay off debt
  • 9% wanted to make a large purchase, such as a holiday
  • 8% wanted the funds to pay off their mortgage.

Catherine Stewart, retirement planning expert at Scottish Widows, said:

“Whilst it’s good more people are evidently becoming engaged with their pension at a younger age, it’s essential everyone is able to access help and information to make informed choices which are right for their retirement plans.”

Talk to us about your accessing your pension.

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Adults ‘overestimate retirement discounts’

Many adults may be overestimating what they will receive in retirement, a study has found.

Insurance company Aviva polled 2,030 people and found 25% are relying on discounts and subsidies to make their retirement more affordable.

Furthermore, 23% said they had a good idea of the perks available to them, such as rail travel and spectacles. However, many were unaware those specific incentives were only discounted.

42% were aware of a discount available on council tax, while a further 15% incorrectly thought they won’t have to pay council tax when they retire.

Only adults aged over 65 and receiving pension credit are eligible for discount on council tax.

Other products adults expected to receive for free in retirement include:

  • social care (15%)
  • broadband (11%)
  • water rates (9%)
  • pet insurance (8%)
  • package holidays (7%). 

25% of adults in retirement said they currently struggle to live off their pension, despite the discounts and subsidies available to them.

Alistair McQueen, head of savings and retirement at Aviva, said:

“Consumers leaning too heavily on incorrect assumptions about subsidies and discounts may be in for an unpleasant surprise when the financial realities of retirement finally dawn.

“The fact some people are depending on fictional discounts to make their retirement more affordable paints a worrying picture of consumers being poorly prepared for the financial demands of retirement.”

Talk to us about retirement planning.

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Wales to receive income tax powers in 2019

Wales will take on income tax powers for the first time from April 2019 as part of a devolution deal with Westminster. 

The Welsh government already has control over its landfill sites and stamp duty, which is set to be replaced by the land transaction tax in April 2018.

Additional provisions in the agreement include:

  • the amount of capital spending available to the Welsh government will double to £1 billion
  • a single Wales reserve will be created to enable the Welsh government to manage its budget, including new tax revenues
  • role for independent bodies, where required will provide input on matters relating to the arrangement.

Mark Drakeford, the Welsh government’s cabinet secretary for finance and local government, said:

“This package paves the way for partial income tax devolution in Wales.  But crucially it protects our budget from the range of undue risks that could arise following the devolution of tax powers from 2018 and provides additional flexibility to manage our resources.”

David Gauke, chief secretary to the Treasury, added:

“We are delivering on our commitments and the Welsh government can now decide how to use their greater powers and responsibilities to grow and support the Welsh economy.”

Contact us to discuss your tax obligations.