Anyone over 55 urged to do £1 pension trick to avoid hefty hmrc bill

MILLIONS OF PENSIONERS COULD BE AT RISK OF OVERPAYING TAX WHEN TAKING OUT LUMP SUMS FROM THEIR PENSIONS, AS MANY ARE BEING URGED TO TAKE ACTION TO AVOID THE ISSUE 11:26, 19 May 2025 The

secret to potentially saving a fortune on your tax bill has been divulged, with UK residents being encouraged to take swift action. A simple £1 pension move could be the key to averting the

loss of thousands in emergency tax associated with pension withdrawals. Scores of individuals over 55 across the nation are unwittingly paying excessive tax when they dip into their pension

pots for significant sums. During the initial quarter of the year alone, pensioners managed to reclaim roughly £44 million in tax overpayments from Her Majesty's Revenue and Customs

(HMRC), averaging around £3,000 per claimant. Such costly missteps arise from HMRC's reliance on outdated tax codes at the time of these pension fund extractions. The clever strategy

involves an initial minimal withdrawal – sometimes a mere quid is sufficient – which sends a signal to HMRC to furnish an updated tax code. David Gibb, who holds the title of chartered

financial planner, commented: "It's a hangover from how regular wages are taxed. But for one-off pension withdrawals, it doesn't make sense – and savers lose out." Clare

Moffat, a pensions authority at Royal London, noted that the precise sum required might differ contingent on your pension scheme's specific terms. "It could be £1, £50 or £100 –

but the idea is to make a small withdrawal first to get a tax code sorted before taking a large sum," she elaborated, reports Birmingham Live. Article continues below GET ALL THE LATEST

MONEY NEWS AND BUDGETING TIPS FROM CHRONICLE LIVE WITH OUR FREE NEWSLETTER Providing further insight, Helen Morrissey, specialist in pensions and retirement at Hargreaves Lansdown, shed

light on the mechanism of emergency tax computation: "When you're taxed on an emergency basis you're treated as though the same amount will be taken on a monthly basis – it

doesn't take into account that this payment is a one-off. "As a result, the income tax payment is calculated using a twelfth of your personal allowance, a twelfth of your

basic-rate tax allowance and twelfth of your higher-rate allowance. Article continues below "The remainder will be taxed at additional tax rates, so they are paying tax at much higher

rates than they ordinarily would." Ms Morrissey further explained: "The excess tax can be reclaimed by filling out a form, but being taxed in this way can take a significant chunk

out of the money you were expecting to receive, [which] could cause you financial hardship or mean you have to change your plans." Tom Selby, director of public policy at AJ Bell,

commented: "We have only just blown out the candles on the cake celebrating 10 years of pensions freedoms. It is simply unacceptable that, after all this time, the Labour Party

Government has still not managed to adapt the tax system to cope with the fact Britons are able to access their pensions flexibly from age 55, instead persisting with an arcane approach

which hits people with an unfair tax bill, often running into thousands of pounds, and requires them to fill in one of three forms if they want to get their money back within 30 days."