Savers who accidentally breach their lifetime allowance fixed protection terms could be spared six-figure tax bills after HMRC withdrew an appeal in a key court case.
The case centred on appellant Gary Hymanson’s claim he had accidentally failed to cancel a direct debit to his pension scheme which, HMRC argued, should void his £1.8 million lifetime allowance ‘fixed protection’.
The loss of this protection could have left Mr Hymanson facing a six-figure tax bill as his lifetime allowance would drop to £1,055,000, with any excess above this exposed to a tax charge of up to 55%.
In November the first-tier tribunal found in Mr Hymanson’s favour, ruling the accidental nature of the rule breach meant he should retain a lifetime allowance of £1.8 million. HMRC has now confirmed its intention not to appeal the ruling - https://www.gov.uk/government/publications/upper-tribunal-tax-and-chancery-register-of-cases/upper-tribunal-tax-and-chancery-hearings-and-register-2014-to-date.
Tom Selby, senior analyst at AJ Bell, comments:
“The fact HMRC appears to have admitted defeat in this case suggests those who make similar genuine errors in relation to their lifetime allowance – errors which in some cases could lead to six-figure tax bills – could be handed a tax lifeline.
“Anyone who has accidentally breached their fixed protection by contributing into a pension in error now has a strong case to go back to HMRC where a tax charge has been applied. The numbers involved could be significant - an AJ Bell Freedom of Information request recently found over 12,000 investors have notified HMRC they have lost one of the various forms of lifetime allowance protection introduced since ‘A-Day’ in 2006.
“Furthermore, anyone in future who accidentally breaches their protection – for example by being automatically enrolled without appreciating the consequences – could challenge the loss of the protection and any tax penalty the Revenue might try to impose as a result.”
