HM Revenue and Customs (HMRC) has confirmed that from 18 February 2026, a structured recovery process may apply to pensioners who have underpaid tax, with balances of up to £300 potentially collected through managed deductions.
This is not a new universal charge and does not apply to all retirees. The measure is linked to correcting verified underpayments identified during annual tax reconciliation. Pensioners who have paid the correct amount of tax will not face automatic deductions.
Here is what the rule means in practice — and who may be affected.
What Is the £300 Deduction?
The £300 figure refers to a potential tax underpayment recovery threshold, not a flat deduction for everyone.
It applies only where:
- HMRC identifies unpaid income tax
- The underpayment has been formally calculated
- Notification has been issued in advance
The policy allows HMRC to recover smaller balances in a structured way rather than issuing standalone payment demands.
Who Could Be Affected?
The majority of pensioners are not expected to be impacted.
Those most likely to fall within review categories include individuals who:
- Receive multiple income streams
- Have workplace or private pensions alongside the State Pension
- Earn savings interest above the tax-free allowance
- Receive rental income
- Had incorrect tax codes applied in a previous tax year
- Changed income sources mid-year
Pensioners relying solely on the State Pension and earning below the personal allowance threshold are unlikely to see deductions.
Why the Rule Is Starting in February 2026
HMRC has been modernising digital tax reporting systems to improve reconciliation processes.
The 18 February 2026 start date aligns with:
- Updated digital tax management systems
- Streamlined reconciliation procedures
- Efforts to reduce backlog and improve accuracy
Officials argue that structured deductions prevent larger unexpected bills later.
How the Deduction Will Work
There will be no surprise withdrawals.
Before any deduction occurs, affected individuals will receive:
- Written notice explaining the underpayment
- A breakdown of how the £300 balance was calculated
- Details of repayment options
- Information about appeal rights
Recovery may be arranged through:
- Adjustments to tax codes
- Structured payment plans
- Managed bank deductions where agreed
Pensioners have the right to challenge calculations before recovery begins.
Is the State Pension Being Reduced?
No.
The State Pension itself is not being cut.
The State Pension remains taxable income, but this update relates only to correcting past underpaid tax balances. It does not reduce entitlement or change uprating rules.
Common Concerns Explained
The term “bank deduction” has caused understandable anxiety.
HMRC has clarified:
- No deduction will occur without formal notice
- There is no blanket £300 charge
- Pensioners can query or appeal decisions
- Repayment plans may be adjusted in hardship cases
Fraud warnings have also been issued. Scammers may attempt to exploit headlines.
Scam Warning
Genuine HMRC communication:
- Does not demand immediate payment by phone
- Does not request bank details via unsolicited texts
- Is issued through official letters or secure online accounts
If in doubt, contact HMRC directly through GOV.UK.
How to Check Your Tax Position
Pensioners can review their status by:
- Logging into their personal tax account online
- Checking their tax code
- Reviewing income records and reconciliation statements
- Contacting HMRC by telephone or post
Ensuring income sources are correctly recorded reduces the risk of discrepancies.
What If You Cannot Afford the Deduction?
HMRC operates hardship frameworks.
If repayment would cause financial difficulty, individuals may request:
- A time-to-pay arrangement
- Reduced instalment plans
- Alternative recovery schedules
Early communication is encouraged to prevent escalation.
What Pensioners Should Do Before February 2026
- Review tax codes and income records
- Confirm personal details are up to date
- Keep copies of pension and savings statements
- Respond promptly to official correspondence
Preparation can prevent misunderstandings and unnecessary stress.
FAQs
Is every pensioner being charged £300?
No. The deduction only applies where HMRC identifies underpaid tax.
When does the rule start?
The structured recovery process begins on 18 February 2026.
Will my State Pension be reduced?
No. The State Pension remains unchanged.
How will I know if I owe money?
HMRC will send official written notice explaining the balance.
Can I challenge the deduction?
Yes. You can query or appeal before recovery begins.
What if I cannot afford to pay?
You can request a time-to-pay arrangement.
How can I check my tax position?
Log into your personal tax account on GOV.UK or contact HMRC directly.