AI is everywhere and everyone seems to be talking about it. We’ve heard lots of anecdotes about how people are using it to answer questions about pretty much everything from advice about personal relationships and health to investments and pensions.
Some have even asked it to help them work out their tax.
Before AI began taking over the world, if you wanted to calculate your tax position, you might have used an Excel spreadsheet or a dedicated online calculator. To ensure the calculator remained accurate, the owner of the spreadsheet or calculator was responsible for updating the relevant tax rates, allowances, or rule changes.
But AI doesn’t have the same checks and balances – so it may confidently use outdated rates, allowances, or legislation.
Tax rarely involves a straightforward question or answer
When we tested AI with real-world tax scenarios, the answers sounded scarily convincing – scary because the confidence concealed the fact that the answer rarely took all the details of an individual’s circumstances into account.
When it comes to tax, doing the maths is only part of the job.
Before you have a hope of doing the right sums, you first need to understand which rules apply and how your own financial circumstances and current tax situation can affect the calculation you should be making.
Your tax position can depend on:
- Your residency
- Other income
- Allowances
- Previous withdrawals
- Tax codes.
Even the timing of a transaction can make a big difference to the outcome.
Missing specific details could make a surprisingly expensive difference
You may have lived in Singapore for years but still have a UK pension. The fact that you live overseas doesn’t mean UK tax rules no longer apply.
Imagine you’re living in Singapore and want to withdraw £12,500 from your UK pension.
At first glance, it might seem straightforward. Indeed, if you have little or no UK income, you likely expect the withdrawal to fall within your available Personal Allowance – worth £12,570 in 2026/27.
However, the amount you expect to receive and the sum that arrives in your bank account can be very different.
If HMRC doesn’t apply the correct tax code for you, your pension withdrawal could be taxed using an emergency tax code. In effect, HMRC will likely assume that the amount you’ve withdrawn is what you’ll continue to receive each month throughout the rest of the tax year.
Getting the calculation wrong is only the beginning
Someone who recently became an Ascenta client had a very uncomfortable time when working with their previous adviser.
What should have been a straightforward a £12,500 pension withdrawal resulted in £4,000 of tax. So, instead of the £12,500 they were expecting, only £8,500 arrived in their account.
The tax was taken because HMRC had applied an emergency tax code. While our new client has managed to reclaim the tax, the mistake caused considerable hassle and a heap of time-consuming admin.
In short, this is the kind of nuance that AI could easily miss.
Meanwhile, working with an expert adviser could help ensure all your circumstances are accounted for in the calculation. Better still, they can explain steps you can take to ensure HMRC applies the right tax code before you make your first (or a particularly large) pension withdrawal.
For example, we may direct you to the right form, or advise you to take an initial, low test payment to give you and HMRC time to align expectations before you withdraw your 25% tax-free sum or other large amount for the first time.
Ignorance is no defence
Crucially, relying on AI doesn’t absolve you from responsibility for paying the right tax. If you submit incorrect information to HMRC – whether due to using AI or simply miscalculating – you may receive a penalty or fine.
If you’ve paid too much tax while living abroad, the form you need to complete is different from that for UK residents.
And because the forms are only available in paper, if you complete and mail the wrong version to HMRC, it could take weeks or months before you realise your mistake – and more time again to complete and return the correct form.
In an added layer of complication, tax repayments are often made by cheque. So, if you’re living abroad and don’t have a UK bank account, finding a way to resolve this can make getting your money back even harder.
You may not even realise that Wise and Revolut are way too modern to accept old-fashioned paper cheques!
Meanwhile, the money wrongly taken in tax will be sitting in HMRC’s account instead of yours.
Human input beats a generic AI answer
We’re here to help and support you in managing all your financial affairs.
Whether you’ve already paid too much tax on a pension withdrawal or would like help to ensure you don’t fall foul of an unexpected tax charge, please get in touch.
