HMRC warning over pension money as they say 'it will not be restored'

HMRC has now issued a tough warning

A woman looks at bills(Image: Jamie Grill Photography/Getty)

A warning has been issued by the HMRC over moves many made with their pensions around the time of the Budget. Before Rachel Reeves' autumn Budget, there was plenty of chatter about potential changes to taxes, benefits, and other financial matters.

While the experts were telling people to hold their horses before any official word came out, some jittery savers jumped the gun, fearing a massive slash in the tax-free pension lump sum limit. In a scramble to beat the Budget, they took out as much dosh as they could, hoping to dodge a tax hit or just shove it back in later if all stayed the same.

But now, HMRC's dropped a bombshell: that nifty "cooling off period" your pension provider might've mentioned? It doesn't apply here.

If you've taken a lump sum out, you can't just waltz back and top up your pension like nothing happened. That cash is out and counted against your allowance, and if you try to be clever and recycle that lump sum back into your pension, you might just get slapped with some hefty charges. They've made it crystal clear: "The payment of a tax-free lump sum cannot be undone and the member's lump sum allowance will not be restored.

"The lump sum must be tested against their lump sum allowance at the time the lump sum was paid from their pension scheme. Unauthorised payment charges may apply if contributions to pension schemes are made out of tax-free lump sums and the conditions for the recycling rule are met."

This implies that individuals who wish to return the lump sum they cautiously withdrew from their pension will be subject to tax on this payment. Despite this, pension providers have resisted the decision made earlier this month, reports Wales Online.

HMRC(Image: GETTY)

Brits are allowed to withdraw 25% of their pension pots entirely tax-free as a lump sum, up to a maximum of £268,275. Prior to the Budget, there was significant speculation that this would be reduced to as low as £100,000, but in the end, the cap remained untouched.

Actress Julia Westcott-Hutton is one of those affected, having withdrawn £138,000 from two of her personal pensions just before the Budget, only to be told she can't reverse the decision. Speaking to The Telegraph about her predicament, she pointed out that while the pension change she had feared didn't materialise, she's likely now going to face an increased capital gains tax when investing the lump sum she withdrew.