Numbers paying pension tax penalties skyrocket

The variety of folks paying tax penalties for exceeding the annual or lifetime limits on pension tax relied rose sharply between the 2020/21 and 2021/22 tax years, in keeping with new figures from HMRC.

The variety of people reporting by means of their tax return that they exceeded the annual allowance rose from 43,870 in 2020/21 to 53,330 in 2021/22.

The surplus contributions rose from £814m to £1.21bn.

The variety of folks incurring lifetime allowance prices rose from 8,820 to 11,660 over the identical interval.

The quantity paid in prices rose from £391, to £497m.

Steve Webb, associate at pensions consultancy LCP and former Pensions Minister, mentioned the figures present why the Chancellor felt pressured to behave in his Spring Finances.

He mentioned: “These figures present why the Chancellor felt pressured to behave in his March 2023 Finances.  Between 2020/21 and 2021/22 the variety of folks paying tax penalties for exceeding the annual or lifetime limits on pension tax reduction went up sharply, producing tons of of thousands and thousands of kilos further for the Treasury.  

“One main group affected was senior NHS medical doctors who might face large tax payments as one other yr of service within the NHS added considerably to the worth of their pensions. 

“Each Annual and Lifetime Allowance limits have been hitting a wider and wider group of people which has added nice complexity to the system of pension tax reduction and the 2023 Finances modifications will subsequently make issues a fantastic deal less complicated for the widening group that may have been affected.”

HMRC revealed the most recent pension tax reduction knowledge on Wednesday morning.