HMRC warns it will challenge tax-free cash returns
HMRC has warned it will challenge people who have tried to return their tax-free cash withdrawals from their pensions.
In its latest newsletter today, it said: "We may challenge alternative interpretations of the tax consequences of tax-free lump sums that have been returned after 5 December 2024, when the position was made clear.
"We expect registered pension schemes to tell members of their reduced lump sum allowance and lump sum death benefit allowance or report unauthorised payments in the usual way."
Laura Purkess, personal finance expert at Investing Insiders, said: "This latest update in the pension tax-free cash withdrawal saga will come as an unpleasant surprise for anyone who thought they had successfully returned their cash without penalty, and to any advisers who recommended returning cash to their clients under cancellation rules.
"The update is a clear message: If you tried to cancel your withdrawal after HMRC made its position clear, you haven't got away with it. The problem is, the position was definitely not clear to many people - advisers were still speculating about whether cancellation rules applied right up until the summer.
“Hopefully, anyone affected by this is informed as soon as possible so they can plan accordingly. People who withdrew their full lump sum allowance will have to pay income tax on any future withdrawals, and will be subject to the MPAA of £10,000 a year going forward. That could drastically alter their plans."
