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Pensioners with annuities face continued injustice

Published on 23 November 2006

For years pensioners with certain types of pensions (annuities) have had too much tax deducted from their payments. Often those pensioners have not known that they have been overcharged, or how to recover the overpaid tax. Now, to add to their pain, HMRC are refusing to repay overpaid tax that is more than six years old, despite the Department’s own delay in telling the pensioners that they have been overcharged.

Retirement annuities are pension plans which were generally phased out in the late 1980s but a million or so people are still getting income from them. As from next April the annuities paid under these plans will come within PAYE, rather than having tax automatically deducted at 22%.

We covered the lack of warning action by both the pension payers and HMRC back in March. You can view our article here.

Government promises

In 2004, a Treasury Minister promised that HMRC would take action to explain to these pensioners that they had been overtaxed, and how to recover the excess. Despite this, HMRC are only now – two years later – sending out the letters.

LITRG have asked that the normal time limit for repayment of overpaid tax – six years – be extended to eight years in recognition of the two-year delay. But HMRC are taking a legalistic approach and saying that the maximum number of years that they are prepared to repay in these cases is six years. This is despite the fact that it took HMRC two years from when the government minister promised maximum help, to write and warn people.

When a taxpayer is negligent and underpays taxes then HMRC can go back and collect underpaid taxes for 20 years. When some of the poorest pensioners in the land want a repayment of the taxes that they have overpaid, HMRC offer 6 years.


Fred is typical of many pensioners. He is77, he is below the tax threshold, and has not dealt with HMRC since his retirement. He did not know the pension company were deducting tax from his annuity. If HMRC had written to him as soon as the Minister announced the help he would not have overpaid tax for the last two years and he would have received repayment for the previous 6 years in addition.

Undoubtedly HMRC will argue that the 6 years is the law. But they have it within their powers to offer redress if they have not acted as promptly as they might have done. As these amounts are, by definition, small to them (but not to a low income pensioner) then an ex gratia addition of a further two years back tax would seem entirely appropriate.

Pensioners must act promptly

Pensioners should also bear in mind that another year will be lost if a claim is not lodged before 31 January next year. It may be that HMRC have not yet written to everyone they need to. If that were to be the case, an ex gratia payment of three years back tax would be appropriate from that point onwards.


Contact: Robin Williamson (Tel: 0844 579 6700 Fax 0844 579 6701)

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