Money

Pensions

Pensioners saved from hidden tax bill

Holly Thomas, finance journalist

The Government has bowed to pressure and agreed to scrap a tax rule that would have forced thousands of low-income pensioners to pay back a debt they didn't even know they had, writes Holly Thomas

This decision will save thousands of pensioners from an unexpected tax bill of up to £300 each - welcome news among the gloom and doom of escalating living costs in the UK today.

Administrative errors by HM Revenue & Customs resulted in up to 420,000 people with small pension pots being under-taxed - many of them likely to be careful budgeters who pride themselves on staying "in the black".

HMRC had intended to contact the pensioners later this year in an attempt to claw back the debt for the tax year 2007/08.

Following a campaign by a group that includes the Low Incomes Tax Reform Group (LITRG) and Tax Help for Older People, the Government will now waive any tax liability.

These campaigners argued that it was the responsibility of HMRC to administer the system correctly and that pensioners should not pay the price for their failure to do this.

John Andrews, chairman of the Low Incomes Tax Reform Group, said: "Although it has taken a year of persuasion, I'm very glad that common sense prevailed. It was clear that pursuit of these debts was going to cause great distress. Not only that, in the end, the costs of collection could easily have outweighed the amounts gathered."

While the Government has withdrawn plans to tax people on these pensions for 2007/08, it will still go ahead with plans to tax small pensions through the PAYE system for the current and subsequent tax years.

Campaigners are now pressing HMRC to contact all those affected as a matter of urgency to alert them to their tax liability for the current financial year so that they can plan for the extra tax payments in their budgeting.

Paddy Millard, chief executive of Tax Help for Older People said: "We see the problems that pensioners face dealing with the complexity of the tax system every day of the week. It is a great relief that this threat has been removed.

"We must now hope that HMRC can get in touch with all these pensioners in the next few weeks, so that the debt for the current year is kept to reasonable proportions."

* Holly Thomas is the deputy personal finance editor of the Daily Express and Sunday Express. Her opinions are her own and for general information only. Always seek independent financial advice.

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