HMRC accused of ‘taxing first and asking questions later’
These rebates are focused on two main areas, Royal London said. The first is income tax on pension withdrawals where savers are taxed on an ‘emergency tax’ basis when they take money out of their pensions. The total refund to taxpayers is £262m.
The second main area of refunds is extra stamp duty on ‘second homes’, which turn out not to be second homes. This can be where someone buys a new house before they have sold their existing home. As long as they eventually sell their first home, they can claim a refund, but it means that a tax designed to hit buy-to-let landlords and second homeowners is hitting those experiencing difficulty selling their homes. These refunds amount to £231m.
Steve Webb, director of policy at Royal London said HMRC is “out of control”. He said: “It operates a system of ‘tax first, ask questions later’, presumably so that the government can enjoy some extra interest until the money is claimed back. It is time to speak up for ordinary citizens who are forced to pay excessive amounts of tax and then go through the hassle of claiming it back. This is a system built around the needs of the Treasury and the bureaucracy, not one which puts people first.”
Royal London said the system needs to be reformed so that one-off pension withdrawals are simply taxed at the standard rate of income tax, with any outstanding balance collected by end of year adjustments. At the same time, second home stamp duty is not collected for routine house sales and purchases except in cases where there is no linked sale and the intention is clearly to become a second homeowner.