Judge Slams HMRC For Unreasonable Pension Ruling

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The tax man has lost a landmark case against cancelling lifetime allowance pension protection which could lead to a string of court cases.

The First-Tier Tax Tribunal ruled that HM Revenue & Customs was unreasonable for cutting Gary Hymanson’s £1.8 million fixed protection because he slipped up and forgot to cancel a direct debit.

Retirement savers have been granted lifetime allowance protection as the threshold for maximum pension savings dropped from £1.8 million in 2012 to £1.25 million in 2016.

The aim was not to penalise savers for breaching the lifetime allowance on savings which was beyond their control  as the limit dropped – providing the saver stopped paying money into their fund.

The current lifetime allowance (LTA) stands at £1.03 million and is set to rise in line with the cost of living each April.

Tax penalty

HMRC cancelled Mr Hymanson’s protection, leaving him open to a tax penalty if his retirement fund breached the lifetime allowance.

The reason given was that he had failed to stop making contributions into his fund.

Mr Hymanson appealed the decision, arguing he should not be financially penalised for making such a small error as forgetting to cancel a direct debit.

Judge Philip Gillett agreedthe accidental nature of the breach meant the protection remained valid.

Tom Selby, senior analyst at AJ Bell, said the ruling could have ramifications for others in a similar situation.

He said: “The ruling potentially drives a coach and horses through HMRC’s hard-line application of the lifetime allowance rules.

No impact on QROPS

“It is refreshing to see the judge take a pragmatic approach in this case, particularly given the sheer complexity of the pension system UK savers are forced to navigate.

“It seems perfectly reasonable in the case of a genuine mistake such as this that the intention of the individual should be the main consideration, rather than blindly following the rules.

“Whether this forces HMRC to rethink its aggressive approach remains to be seen, however.”

HMRC can appeal the decision to the Upper Tribunal.

The ruling does not impact offshore QROPS pensions for expats as the lifetime allowance test is only applied to funds when they leave a UK pension – once offshore they can grow beyond the LTA threshold without penalty.

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