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Tax-code trap can cost pensioners thousands


HMRC has been accused of overcharging people thousands of pounds for drawing cash from their pensions because of a quirk in the tax system. Under the pension freedoms, savers can withdraw up to £11,850 a year without having to pay income tax on it. However, unless a person’s pension provider has an up-to-date tax code for them, it is obliged to impose an “emergency rate” of tax on any withdrawals of more than £987.50. Investment provider AJ Bell calculates that someone withdrawing £50,000 could end up paying £12,000 more than they need to, with the average overpayment totalling £2,420.

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