Royal London, which claims to be the UK’s largest mutual life insurance and pensions company, made the comment after analysing HMRC’s quarterly stamp duty statistics and its data on pension tax refunds.
From its analysis, it say taxpayers have had to claim back £493m (€562m, $698m) from HMRC since April 2015.
Tax first ask later
Steve Webb, director of policy at Royal London, said: “HMRC is clearly out of control. It operates a system of ‘tax first, ask questions later’, presumably so that the government can enjoy some extra interest until the money is claimed back.
“This is a system built around the needs of the Treasury and the bureaucracy, not one which puts people first,” Webb said.
Two sources
A spokesperson for Royal London said there are two areas of the tax system where HMRC systematically collects “huge sums in tax”, which it then has to hand back to taxpayers.
The first area is income tax on pension withdrawals, where savers using pensions freedoms pay an “emergency tax” when they take money out of their pensions. They then have to fill in one of three different forms to claim this money back.
“Since the [pensions freedoms] started in April 2015, the total amount refunded to taxpayers has been £262m,” the spokesperson said.
Stamp duty
The second area is extra stamp duty on property on a “second home” that is actually not a second home.
The spokesperson said this is when someone completes the purchase of a house before they have sold their existing house, they have to pay an extra 3% duty on the transaction.
As long as they actually sell the first house, they can then claim a refund on a tax really designed to hit “buy-to-let” landlords, not people moving house, the spokesperson said.
“Today’s figures show that the total amount which HMRC has had to refund since April 2016 is £231m,” they said.
Helen Morrissey, personal finance specialist at Royal London, said: “Taxes like the second home stamp duty were designed to clamp down on buy-to-let landlords, not people whose house sale took longer than they expected.
“These figures do not even include the people who are over-taxed without realising it and never claim a refund,” she said.
Reform recommended
Royal London says its analysis shows the system needs to be reformed so that one-off pension withdrawals are simply taxed at the standard rate of income tax, with any outstanding balance collected by end of year adjustments.
It also suggests that second home stamp duty is not collected for routine house sale and purchases, except in cases where there is no linked sale and the intention is clearly to become a second home owner.
