Pensioners living overseas could see their private pensions cut by 20 per cent or more because HM Revenue & Customs is still issuing incorrect tax codes.

In February, HMRC apologised after a change to its computer system meant thousands of people received the wrong code. Individuals were asked to report errors at the time, but many have still been sent the wrong codes for the 2010/11 tax year.

Many overseas residents’ pensions have been taxed at the basic rate at source, before any money leaves the UK. To correct the error, those living abroad must contact HMRC and provide proof that they are paying tax in the country in which they reside.

Angela Beech, head of personal tax at accountants Blick Rothenberg, said: “Some of these people will have been out of the country for more than a decade and might not understand why they are now receiving just 80 per cent of their payments.”

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