Common Pension Tax Mistakes That Could Trigger an HMRC Pension Investigation

What Could Trigger A HMRC Pension Investigation?

There are many reasons why HMRC may carry out a pension investigation, these include:

• Incorrect Pension Tax Relief Claims
• Unauthorised Payments from Pensions
• Scheme Registration and Reporting Failures
• Missing or Incorrect Self-Assessment Disclosures
• Non-Permitted or Taxable SIPP Investments
• Overseas Property and Development Schemes in SIPPs
• Incorrect Transfers to or from QROPS
• Incorrect Valuation of Overseas Assets

Can HMRC Investigate Pension Issues Years Later?

Yes, if HMRC “discover” a suspected loss of tax after the end of the normal 12 month enquiry period following the submission of a tax return then they may be able to assess that tax loss using a “discovery” assessment in the years that follow. The periods are 4 years generally, 6 years if they can show carelessness and 20 years for dishonest behaviour.

What Happens If I Am Overseas?

It is normally sensible to co-operate with an HMRC pensions investigation even if you have gone abroad and no longer have any assets in the UK. This is because HMRC have various tools available to them to chase you including serving third party information notices on banks, pension scheme administrators and other firms or persons who may be able to provide information about your tax and financial affairs, make a claim against you for unpaid tax in the County or High Courts and then seek to enforce that judgment against you in the courts of the country where you reside and/or file for your bankruptcy in the UK and also seek the assistance of the tax authorities in your country of residence using a mutual assistance agreement with the relevant tax authorities.

In addition many countries now are sensitive to allowing “bad” people to remain after having emigrated and you could be “invited” to leave if HMRC contact the authorities and seek their assistance. For example, the UAE authorities are very concerned to ensure that their residents observe their legal obligations and behave appropriately and do not engage in any questionable behaviour and leaving behind unpaid tax debts will not impress them.

Are Honest Mistakes Penalised?

Yes, penalties can still be charged for say an unauthorised withdrawal of up to 55% of the amount withdrawn and the pension scheme administrator can be hit with a 40% scheme sanction charge. Indeed an HMRC pension tax lump sum warning makes it clear that tax free lump sums withdrawn from a pension scheme cannot be paid back in without risking unauthorised payments charges if contributions to pension schemes are made out of tax-free lump sums and the conditions for the recycling rule are met.

What Is A HMRC Pension Tax Lump Sum Warning?

This generally refers to newsletter 173 issued in September 2025 which warns people who withdrew their tax free pensions lump sum but who have exercised their 30 day right to cancel that the tax consequences of the withdrawal cannot be reversed.

What Should I Do If I Am A Suspect Or Under Investigation?

It would be sensible to seek professional advice from a pension tax adviser with specialist pension tax investigations experience. In this regard a specialist tax barrister instructed under public access can provide you with advice directly at fees fixed and agreed in advance and often at a more economical cost than large firms of solicitors or accountants who deploy large teams of fee earners at hourly rates.

Conclusion

With open banking and various AI investigative tools available to them HMRC now find it easier to identify and investigate irregularities in people’s pension tax affairs. There are many areas where mistakes can be made and as we have seen the level of penalties if things go wrong can be disastrous. HMRC will show no mercy even if you are the subject of a scam and money gets released from your pension scheme contrary to the rules.