BBC expert HMRC tax £2,900 alert over pensions mistake
In just three months of this year £44 million was paid wrongly due to pensioners being placed on emergency tax
A financial expert on BBC's This Morning Live has revealed a simple monetary trick that could help individuals avoid being hit with a 'super tax' by HMRC over their pensions.
Finance expert Laura Pomfret joined presenters Helen Skelton and Gethin Jones on the popular programme, where she discussed how people are being heavily impacted by being incorrectly placed on an emergency tax code.
The issue arises when individuals, entirely within the law, access their pension lump sum early. Often, this is a one-off sum used to fund a significant purchase such as home improvements.
However, HM Revenue and Customs assumes the person will withdraw the same amount each month, potentially leading to thousands in unnecessary tax payments.
Ms Pomfret highlighted that in the first quarter of 2025, £44 million needed to be reclaimed by over-55s who had overpaid to HMRC. She elaborated: "To put that in context, it's around 15,000 people and an average of £2,900 each. This isn't a little bit of tax that's going off to HMRC. It's a lot."
"This situation arose because, as you may recall, we had quite a significant change in the pensions industry 10 years ago. It was the introduction of pension freedoms, which gave you the liberty to access chunks of your cash that was in your pension and withdraw it flexibly. However, this has meant that people have been inadvertently overtaxed with these withdrawals."
Article continues below
Coletta Smith, the BBC's Cost of Living correspondent, outlined: "Crucial thing is that the 1st 25% of whatever you take out is tax free. Anything above that, you get taxed on. And what happened was that HMRC didn't change the rules that they had when this new freedom was introduced."
She further explained: "So over the last decade, when people drew down some money from their pension. The tax man looks at that, say you take out £5,000 pounds one month, and that's all you're going to take out for that year. But the tax man assumes that that's month one and that every month you're going to be taking out £5,000 pounds, and that pushes you over the limit as a result.
"So what happens is you get given an emergency tax code, that means that you are taxed at a much higher rate as a result and you have to reclaim as a consequence, and that's the process that people have been having to go through up until this point."
When Helen queried the current status, Ms Pomfret responded: "So it has changed a little bit since then, so in April the government introduced um uh a better tax code process, which means that people taking regular income out of their pension get the correct tax code faster, ideally within a month rather than waiting until the end of the tax year. But it still doesn't help those people making these one-off withdrawals."
Content cannot be displayed without consent
She outlined a scenario involving a 60 year old withdrawing a £10,000 lump sum and being assigned an emergency tax code by HMRC. She explained: "This means it's treated as though he's going to do £10,000 every single month not just a one-off. So he's going to be taxed as though he's taking out £120,000. She said he could be taxed as much as 40 per cent."
Ms Pomfret then highlighted how to recognise if you're paying emergency tax: "You need to know the tax code that you're actually on. It would either have a W1, and M1 or an X on the end if it's an emergency tax code."
She noted that although HMRC will eventually rectify the situation, the individual might have to wait until the end of the tax year. However, there is an option to claim the tax back within 30 days using a specific form.
Helen Skelton inquired: "What's this about £1 to protect your pension?" Ms Pomfret replied: "If you think about Arthur's situation he wants to withdraw a chunk, so what we want Arthur to do is withdraw a small amount first and let's pick £1.
Article continues below
"By doing so as the initial withdrawal instead of the £10,000, this action would activate the system allowing him to check the tax code set by the pension provider and determine its accuracy. If it's incorrect, there's the opportunity to amend it before proceeding. Once the correct tax code is established, then Arthur can confidently withdraw the larger sum, knowing it will be taxed properly."

Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles


Daily Mail
2 hours ago
- Daily Mail
Fraudster behind £1.2m VAT con who blew £19,000 on 40th birthday party and lived it up in luxury hotel stays in Dubai and London is jailed
A fraudster who masterminded a £1.2million VAT con and blew £19,000 on his birthday party has been jailed. Nicholas Adams handed in bogus company tax returns to HMRC and then used the VAT repayments to pay for his 49th birthday party, flights to the UAE and luxury hotel stays in London and Dubai. Over a 19-month period between January 2022 and August 2023, Adams posed as the director of a shell company, Greenpoint Technologies, which he claimed specialised in aircraft and spacecraft maintenance. However, this was only a front for the scam, which made him £373,706. In total, Adams tried to claw back over £1.2million in total before raising suspicions of officials at HMRC, who then withheld further payments. He splashed hundreds of thousands of pounds on what prosecutor Martha Smith-Higgins said was 'a very lavish lifestyle'. There were three stays at five-star hotels - two at The Savoy in London and one at the Atlantis in Dubai. Newport Crown Court heard that Adams lived it up on the proceeds, throwing a £19,000 birthday party at The Botanist in Cardiff, and splashing out on luxury trips to Dubai and London, including stays at The Savoy and Atlantis The Palm. He also spent £43,000 on clothes and jewellery and jetted off to the UAE using the stolen money. But the lavish lifestyle came crashing down when HMRC launched a probe and raided his home, uncovering a trove of forged paperwork. Initially when officials queried the tax returns, Adams lied and created fake documents to support his story but these proved to be wrong after the raid. 'He was the controlling mind behind a substantial and sophisticated VAT fraud,' said Ms Smith-Higgins. 'This was fraud from the outset.' The court was told Adams spiralled into debt after losing his job following Brexit and was sectioned under the Mental Health Act in 2021. His defence lawyer, Peter Dennison, said he had since tackled alcohol dependency and was 'ashamed and remorseful'. But Judge Daniel Williams was clear: 'This was a vehicle for fraud. It was sophisticated offending over a prolonged period. The culpability was high.' Adams, of Whitchurch, Shropshire, who had pleaded guilty to knowingly concerned in the fraudulent evasion of VAT at an earlier hearing, was jailed for two years, though he's likely to serve just one behind bars. Following sentencing, an HMRC spokesperson said: 'Tax fraud is not a victimless crime. 'It has real consequences for the public services we all rely on and we are working hard to ensure tax cheats like Nicholas Adams do not gain an unfair advantage over their law-abiding competitors who pay the tax that's due. 'We encourage anyone with information about any type of tax fraud or money laundering to report it online at


Daily Mail
4 hours ago
- Daily Mail
How being an accidental landlord could land you with a surprise tax bill when you sell
Britons could face a large tax bill if they opt to keep a former home as an investment. Some people, particularly those moving in with a partner or spouse, decide to keep a property rather than selling it when they move - becoming an 'accidental landlord'. While it can seem like a good investment given the prospect of rental income and potential house price growth, it could inadvertently end up costing people when they do eventually come to sell in the future. This is because those who sell their main home, rather than letting it, are entitled to full Private Residence Relief (PRR), which will shield them from capital gains tax (CGT). But once they let out their property, they forfeit their right to full PRR when they sell. 'PRR is essentially your protection against capital gains tax, and while you're living in your home as your main residence, any increase in its value is completely tax-free when you sell,' says Eamon Shahir, founder of self-assessment platform Taxd. 'Here's the crucial difference: if you sell your home while it is still your main residence, you don't pay capital gains tax no matter how much it has increased in value. 'However, if you decide to start renting to tenants, you don't immediately lose all that tax protection. 'His Majesty's Revenue and Customs apportions the gain based on how long you lived there versus how long you rented it out.' What it could mean for you On residential property, capital gains tax is currently charged at 18 per cent for basic rate taxpayers, and 24 per cent for higher rate taxpayers – but with any significant gain, people are likely to pay most of it at the higher rate. This is because a capital gain is added to a person's normal income to decide the tax rate. 'A lot of homeowners think their main home is always tax-free,' said Andy Wood, international advisor at Tax Natives. 'And it is, until you move out and rent it. 'That can mean a sizeable CGT bill, sometimes tens of thousands of pounds, which often comes as a nasty surprise if you weren't expecting it.' Plenty of people choose to rent their homes out for a while, rather than sell, according to Wood. 'Maybe they've moved in with a partner, taken a job elsewhere, or just don't think it's the right time to sell,' he adds. 'It often feels like a short-term, low-risk choice. But once you move out, the tax position shifts. 'You start losing the relief you get for living there, and the longer it's rented, the more of the gain becomes taxable.' Can capital gains tax wipe out rental profit? Ask a buy-to-let investor what has made them more money over past decades: rent or house price growth? The answer will invariably be house prices. Take a city like Manchester for example. Property prices there have almost doubled over the past 10 years, rising from £131,000 in May 2015 to £257,000 in May this year, according Land Registry figures. This means the average property in Manchester has risen in value by £12,600 a year on average over the past decade. Meanwhile average rents, which were £815 a month in the city in 2015 are now £1,143 per month, according to Zoopla's data. This means the average property has gone from making £9,780 a year to £13,716 a year in rent - but that's before tax, letting agent fees and any upkeep costs. Capital gains tax can be charged on any profit made on an asset that has increased in value, when someone comes to sell. It is the gain that is taxed, not the total amount of money they receive. For example, someone who doubles their house price from £131,000 to £257,000 will pay 24 per cent CGT on the £126,000 gain, though there is a £3,000 tax free annual allowance. While the CGT bill is unlikely to wipe out all rental profits, there are situations where it might - particularly if house prices suddenly take off in an area. For example, someone who purchased in London in the aftermath of the 2008 crash, but moved in with a partner and kept their home to rent may have found themselves in this predicament. Between May 2009 and May and May 2016, average London prices rose from £321,000 to £627,000. That's a £306,000 gain over a seven-year period averaging out at £43,715 a year. Someone in this situation selling in May 2016 would have faced a 28 per cent CGT bill at that time, albeit with a £11,100 annual allowance. That means in such a scenario they would have potentially incurred a £82,572 CGT bill on the sale. 'This catches more people out than you might think,' says Andy Wood of Tax Natives. 'If your rental income's been fairly low, but the property's gone up in value, you could still face a large CGT bill when you sell. 'We've seen cases where landlords earned £3,000 a year in rent but paid £30,000 or more in tax when they sold. That's enough to wipe out all the rental gains – and then some. 'Lettings relief used to help with this, but it was heavily cut back in 2020. Now, most of the gain will be taxed at 18 per cent or 24 per cent, depending on your income. 'That's a big hit for something that might have started off as a more of a stopgap solution.' However, it's worth pointing out that when someone moves out of their main home, they won't forfeit all their CGT relief. They will lose it for the years the property is let out, so when they sell they'll need to work out the proportion of time they lived in the home compared to the years it was let out. PRR also applies in full for the last nine months of ownership, whether or not someone lives at the property - provided the property was their main residence at some point. For example, if someone bought a property in 2010 and sold it in 2025, that's 15 years or 180 months in total. If they lived there for 10 years (120 months), they'd get PRR relief for 129 months (the 120 they lived there plus nine bonus months). That means 71 per cent of any gain would be completely tax-free. If they decided not to sell the property and rent it out, then only the remaining 29 per cent of the gain, representing the rental period, would be subject to capital gains tax. Eamon Shahir, founder of the online accountancy service Taxd Can it still make sense to let out your previous home? Ultimately, avoiding a potential CGT bill should not be the main reason for making a decision about whether to keep a property, rather than selling it. If someone could benefit from the rental income and feel the home will increase in value in the future, then there is arguably a strong reason to keep it as an investment. 'CGT is not necessarily a deal-breaker,' says Shahir of Taxd. 'It really depends on each person's specific situation, and once you understand how CGT works, keeping a property as a rental can still make perfect financial sense. 'And, with CGT, you're only ever taxed on the gain in the property's value, so you're never actually worse off for having owned it. 'The question is whether the rental income plus remaining capital growth makes it worthwhile. He adds: 'It often works well to let your property if you expect continued property price growth, rental yield after tax looks attractive, or you bought the property years ago and have already banked significant tax-free gains having lived there. 'On the other hand, it might not work if your property has already seen most of its gains and values are now stagnant or rental yields are poor.' There are also certain rule quirks that will benefit some people more than others, according to Shahir. 'Expats have a major advantage as CGT is only calculated on gains since 2015, which can make huge savings,' he says. 'And, if you move abroad for work, and then come back to live in your property - you will still qualify for PRR. 'For most people it depends on the long term goal. Holding the property and letting it out can be good as additional rental income, and potential CGT or PRR relief is available. Each individual should analyse, evaluate or seek tax support.' Best mortgage rates and how to find them Mortgage rates have risen substantially over recent years, meaning that those remortgaging or buying a home face higher costs. That makes it even more important to search out the best possible rate for you and get good mortgage advice, whether you are a first-time buyer, home owner or buy-to-let landlord. > Mortgage rates calculator > Find the right mortgage for you To help our readers find the best mortgage, This is Money has partnered with the UK's leading fee-free broker L&C. This is Money and L&C's mortgage calculator can let you compare deals to see which ones suit your home's value and level of deposit. You can compare fixed rate lengths, from two-year fixes, to five-year fixes and ten-year fixes. If you're ready to find your next mortgage, why not use This is Money and L&C's online Mortgage Finder. It will search 1,000's of deals from more than 90 different lenders to discover the best deal for you.


Daily Mirror
6 hours ago
- Daily Mirror
Child Benefit payments will stop for thousands of parents unless they act now
You can claim Child Benefit if you're responsible for a child under the age of 16, or if they are under the age of 20 and still in approved education or training Thousands of parents will have their Child Benefit payments stopped next month unless they update their claim. Child Benefit is worth £26.05 a week for your first child, then £17.25 for any additional child. You can claim Child Benefit if you're responsible for a child under the age of 16, or if they are under the age of 20 and still in approved education or training. If they are continuing with education or training after the age of 16, then you need to notify HMRC and update your benefit claim. This is because your Child Benefit will automatically stop on August 31 on or after your child's 16th birthday. You also need to let HMRC know if your child leaves their approved education or training before the course is complete. Approved education or training can include A-Levels, NVQs or even home education, but it does not include university or BTEC qualifications. Child Benefit is claimed by more than seven million families. It is paid every four weeks, on a Monday or Tuesday, by HMRC. In order to be eligible for Child Benefit, your child normally has to live with you, or you pay at least the same amount as Child Benefit toward looking after them. You can claim Child Benefit if you fostered a child, as long as the local council is not paying anything towards their accommodation or maintenance, or if you adopted your child. You may also be entitled if you're looking after a child for a friend or relative. There is no limit for how many children you can claim Child Benefit for, but if two people look after a child, only one person can claim Child Benefit. If you, or your partner, are on a high income, then you may have to pay back some of your Child Benefit. If either you earn over £60,000, you have to pay back 1% of your Child Benefit for every £200 you earn over £60,000. This is known as the High Income Child Benefit Charge. Once you earn over £80,000, you pay back 100% of your Child Benefit. The upcoming bank holiday on Monday, August 25 means some Child Benefit payments will be issued on a different day. If you're due a Child Benefit payment on Monday, August 25, you'll receive your money on Friday, August 22 instead. The amount you get paid will not change. If you live in Scotland, there is another bank holiday on Monday, August 4. Those who are due a Child Benefit payment on this date will be paid later, on Tuesday, August 5, instead.