HMRC face scathing review of tax relief practices but ‘fools’ rushing in may not help

HMRC has faced scathing criticisms from the Public Accounts Committee this week who found worrying problems with the management of the pension tax relief system. The committee did not mince their words when describing the problem.


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As the committee detailed: “We are concerned that HMRC does not understand the impact of any of the largest tax reliefs, including reliefs on pensions which were forecast to cost £38 billion in 2018–19.

“In March 2015, we reported that HMRC did not systematically evaluate the effectiveness of all tax reliefs intended to change behaviour.

“In the five years since then, HMRC has not evaluated any of the ten largest tax reliefs supporting the government’s economic and social objectives.

“These reliefs cost £117 billion a year, around five percent of the UK’s gross domestic product.

“Those evaluations it has undertaken show mixed results, with only one of the four reliefs costing over £1 billion having a positive impact on behaviour.

“Despite the large cost of reliefs on pensions, HMRC has not evaluated what benefit these reliefs provide.”

They went on to provide HMRC with the following, non-exhaustive, recommendations:

  • within three months, establish and publish the criteria it will use to determine which reliefs to evaluate; and
  • within 12 months, have evaluated the impact of pension tax reliefs.
  • HMRC should assess the groups and sectors benefiting from all significant reliefs and publicly report the results during 2021. For pension reliefs, HMRC should publish data showing who is benefiting, split by: income; groups with protected characteristics such as gender, age, ethnicity; people working in the public and private sectors; and people in defined contribution and defined benefit schemes.
  • HMRC should, within three months, publish a list of all new and existing reliefs with objectives that include changing behaviour and specify the objectives of each.

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Full details of the report can be found on and while it may make for worrying reading, some feel that there is a “strong case to leave well enough alone”.

Nigel May, a Partner at MHA Macintyre Hudson, responded to the review: “The PAC report on pensions tax relief laid bare one of the inherent problems with the UK tax system. Since 2015 HMRC hasn’t evaluated any of the ten largest tax reliefs to assess how they support the government’s economic and social objectives.

“Pensions tax relief came in for criticism due to its high cost; £38bn in 2018-2019 for a policy where effectiveness is poorly monitored and understood.

“Unfortunately, when it comes to pension’s tax relief, fools rush in where angels fear to tread.


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“Using the relief as a political football doesn’t help anyone. Pension planning requires tax payers to make long-term decisions, so frequent reforms and revisions are harmful.

“The inquiry may well lead to detailed recommendations and then reforms, but we’ve seen this before.”

He went on to provide a bit of a history lesson on pension tax rules: “Pension legislation was already the subject of a major overhaul with effect from April 2006.

“Since then pensions have been subject to tinkering on an almost annual basis.

“In April 2016 tapering of the annual pension allowance for the UK’s public sector defined benefit scheme was introduced, and illustrates very effectively how seemingly worthy changes have Unforeseen and negative effects.

“The consequence was that NHS consultants were disincentivised from working because of the resulting pension tax charges. This was only dealt with this April, by increasing the point at which the annual allowance is tapered from £150,000 to £240,000.

“Overall, while the cost of pension tax relief is large, there is much to be said for leaving well alone.”

According to the government, people could get tax relief on their private pension contributions worth up to 100 percent of their annual earnings.

The tax relief will apply automatically if the persons:

  • Employer takes workplace pension contributions out of their pay before deducting Income Tax
  • Rate of income tax is 20 percent – their pension provider will claim it as tax relief and add it to the pension pot (known as “relief at source”)

There is an annual allowance of £40,000 which limits how much support savers could receive and if early withdrawals are made they could trigger costly Money Purchase Annual Allowance tax bills.

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