HMRC Response – Backlash Grows Over New Rule Targeting Pre-1945 Pensioners

In early 2025, HMRC found itself in hot water after rolling out a tax rule change that caught many pensioners off guard—especially those born before 1945. What seemed like technical tax tweaks ended up causing financial stress for retirees who never thought they’d be taxed on their pension. So, what exactly happened, why is everyone talking about it, and most importantly, what can you do if you’re affected? Let’s break it down.

Changes

At the core of the controversy is the freezing of the personal tax allowance at £12,570 until 2028. Normally, this threshold increases with inflation. But with the state pension rising each year due to inflation, many pensioners are now brushing up against or exceeding this limit.

Here’s the math:

• New State Pension for 2025/26: £230.25 per week
• That’s £11,973 per year

That leaves just £597 of untaxed income before hitting the threshold. If you get a private pension, even a modest one, it could push you over.

For example:

Income Source	Annual Amount
State Pension	£11,973
Private Pension	£1,500
Total Income	£13,473
Taxable Over Allowance	£903
Estimated Tax Due	~£180

This situation affects over 650,000 pensioners—many of whom are navigating the UK tax system for the first time in years.

Emergency Codes

Another major issue has been emergency tax codes. When pensioners withdraw lump sums from private pensions, HMRC often applies codes like W1, M1, or X. These codes treat the withdrawal as monthly income, which leads to inflated tax deductions.

Between January and March 2025 alone, over 15,000 pensioners claimed back £44 million. That’s an average refund of £2,881 per person. The process of getting this money back? Complicated and confusing.

As one tax expert put it, “It’s absurd that people in their 80s and 90s are being forced to decipher tax codes or reclaim thousands through forms they’ve never seen before.”

HMRC Response

In response to the backlash, HMRC rolled out several reforms starting April 2025:

• Automatic Tax Code Updates: After the first pension withdrawal, HMRC will now auto-adjust your tax code instead of waiting for manual correction.
• Improved Communication: Pensioners will receive clear notices about tax code changes—either by mail or through their online account.
• Easier Refund Process: HMRC is reviewing whether tax overpayments can be refunded automatically, reducing the need for forms like P55, P53Z, or P50Z.

What To Do

Here’s what pensioners—or their families—should do to stay ahead of the changes:

1. Check Your Tax Code
   Look for W1, M1, or X on your pension statement. These are emergency codes.
2. Calculate Total Income
   Add up your:
   • State Pension
   • Private pensions
   • Interest from savings
   • Any rental income
   If your total exceeds £12,570, you may owe tax.
3. Reclaim Overpaid Tax
   Use the appropriate form:
   • P55: If you’ve stopped pension withdrawals
   • P53Z: If you withdrew a lump sum but still work
   • P50Z: If you withdrew a lump sum and stopped working
4. Get Professional Advice
   Contact HMRC at 0300 200 3300 or speak to a qualified financial advisor for help.

Support

Supporting elderly relatives through this can be a big help. If you’re a carer or family member:

• Help them register for an HMRC online account.
• Fill out reclaim forms with their consent.
• Speak to HMRC on their behalf if needed.

Fallout

This isn’t just a tax issue—it’s a political one. Freezing the personal allowance while inflation pushes up pensions has been labeled a stealth tax. Some pensioners are even losing access to benefits like the Winter Fuel Payment, now being means-tested.

With a general election on the horizon, how the government handles pensioners’ concerns could sway votes. Many feel left behind by a system that wasn’t built with them in mind.

If you’re a pensioner—or care for one—now is the time to get informed, review your finances, and make sure you’re not paying more than you should.

FAQs