The taxman should go easy on people who take advantage of pension freedoms | City A.M.
Britain’s demographic timebomb threatens to send the national debt soaring in coming decades, as an ageing population takes its toll on our fiscal health. Even now, with government under pressure to pledge billions of extra pounds for the NHS, the Treasury is in desperate need of finding a few extra bucks.
Thus there was some good news for the public purse in yesterday’s string of announcements from HM Revenue and Customs, with several taxes bolstering Treasury coffers.
For a start, inheritance tax (IHT) receipts hit an all time high in 2017-18, soaring eight per cent to more than £5.2bn.
The burden of IHT falls primarily on the south of England, with £2bn coming from London and the rest of the south eastern region in 2015-16 (the most recent year for which such a breakdown is available). In London the average payout was an eye-watering £223,176.
Read more: Is inheritance tax too complicated?
And the jump in IHT revenue was not the only unpalatable boost to the taxman. HMRC also provided an updated glimpse into repayments it is forced to make to people who have overpaid tax on their pensions.
Pensioners who take advantage of freedoms brought in by the coalition government can be hit by an emergency tax code. They must then take matters into their own hands to reclaim the money. HMRC has paid back over £300m to pensioners, but one analyst from investment experts AJ Bell warned: “this only covers people who have filled out the official forms and is therefore likely to be the tip of the iceberg”.
Ex pensions minister Steve Webb was incredulous, tweeting: “HMRC admits to another £29m of overpaid tax on pension withdrawals in the latest three months – how much longer can they get away with this?”
Yesterday’s announcements reminded us of the government’s many lucrative revenue streams. Tax from non-doms also rose, and is now nearing £10bn. And cash from the diverted profits tax, designed to tackle cross-border corporation tax avoidance, is much higher than had been expected.
However, the data also reminded us of the absurdities and excessive complexities of our tax system. Chancellor Philip Hammond is rightly looking into the simplification of IHT, which is a start. Another start would be to change a system that sees pensioners automatically hammered by the taxman for drawing down on their hard-earned life savings.