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UK Pensioners Hit with Massive Tax Bills on Lump-Sum Withdrawals

Emergency tax codes on one-off pension payments are causing excessive charges, prompting experts to recommend strategies to minimize liabilities.

There are ways to manage pension withdrawals to reduce your tax bill (Photo: Getty)
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Overview

  • HMRC is demanding unpaid taxes from thousands of retirees who made large lump-sum pension withdrawals, with some bills exceeding £98,000.
  • Between October 2023 and March 2024, 1,593 pensioners withdrew £100,000–£249,000, incurring minimum tax bills of £27,400 each, while 292 withdrew over £250,000, facing bills of at least £98,700.
  • Emergency PAYE tax codes treat one-off withdrawals as regular monthly income, often pushing retirees into higher tax brackets and resulting in overpayments.
  • In Q1 2025, retirees reclaimed £44 million in overtaxation from HMRC, averaging £3,000 per person, highlighting the scale of the issue.
  • Financial advisers recommend making small initial withdrawals, as little as £1, to trigger accurate tax coding or spreading payments to reduce tax liabilities.