Brits have been urged to think carefully before accessing their private pension pots, amid warnings that some seemingly “helpful” advice could land them with a hefty tax bill. HMRC said that certain schemes promising tax relief or extra income can amount to tax avoidance – leaving people not only with unexpected tax bills but also interest and penalties.
The tax authority issued a warning via a post on X, saying: “Think twice before accessing your private pension pot. It may count as tax avoidance and could end up costing you more than you expect.” It comes as experts say some unscrupulous advisers are targeting workers with schemes that sound too good to be true.
HMRC stressed that everyone is responsible under UK law for paying the correct amount of tax, even if they rely on someone else’s advice. The tax authority stressed that payments made outside the official tax rules are classed as unauthorised payments, and tax charges are payable.
These include most lump sums taken before age 55, lump sums in excess of £30,000, and continued payments after a member’s death. Payments made due to incorrectly calculated pension transfers or annuities can also be classed as unauthorised.
“Unscrupulous firms are using misleading information to promote personal loans or cash incentives, enticing savers to unlock their pension pots early,” HMRC warned. “There is no legal loophole – these transactions are unauthorised payments.”
Unauthorised payments are subject to three tax charges:
- The unauthorised payments charge of 40%, payable by the member (or employer if relevant).
- The unauthorised payments surcharge of 15% if 25% or more of a pension pot is taken in a year, taking the total tax payable to 55%.
- The scheme sanction charge of 40%, payable by the scheme administrator on most unauthorised payments, borrowing, or investments in taxable property.
Members can pay the tax either through a mandate allowing the scheme to deduct it, or via Self Assessment. HMRC stressed that ignoring the problem only makes the bill bigger.
Think twice before you act
HMRC’s recent reminder comes as experts say some advisers are targeting workers with schemes that promise extra income or tax relief but are actually avoidance schemes. Tax avoidance usually involves artificial arrangements designed solely to reduce tax.
Workers should be wary of payments that don’t match their payslip, untaxed loans, or capital advances. Those caught up in schemes face the tax owed, plus interest and any fees already paid to the scheme promoter.
Get help before it’s too late
Anyone who suspects they are involved in a tax avoidance or unauthorised pension scheme should contact HMRC immediately. “Ignoring the problem is not the answer. The longer you leave it, the bigger the tax bill,” the authority warned.
Support is available to exit schemes safely, and instalment arrangements can be offered for those unable to pay at once. Suspicious schemes can be reported online or by phone at 0800 788 887 (or +44 (0)203 0800 871 from outside the UK). Reports can be made anonymously using code ‘TAC’.