Retirement savers who opted to switch their money to pension liberation scams are finding tax tribunals have little sympathy when they appeal penalties.
In the latest of a string of cases to go before the First-Tier Tax Tribunal, the judge ruled the Clare Franklin acted unreasonably by moving her money into the liberation scheme without taking independent financial advice.
Franklin, 52, moved her £51,000 pension savings from her civil service pension into a SIPP operating as a pension-backed loan scheme in 2011.
Through the SIPP, the fund bought shares in KJK Investments, which lent money to G Loans, which then lent Franklin half here pension fund. The loan came to £26,842 borrowed at 5.5% fixed interest paid in advance with a £1,342 arrangement fee.
Franklin had the balance of £24,104 paid into her bank.
In 2015, both KJK Investments and G Loans were wound up following an Insolvency Service inquiry.
HM Revenue & Customs told the tribunal that the loan was an unauthorised payment from the SIPP.
Unauthorised payments attract a 40% tax penalty and 15% surcharge – so HMRC demanded £14,762 from Franklin.
She paid the 40% charge (£10,736) but disputed the surcharge (£4,026) and appealed to the tribunal.
Tribunal judge Michael Connell dismissed her appeal, finding she acted unreasonably in relation to entering the scheme and receiving the unauthorised payment.
“She believed the payment to be a loan and that it would not be a connected payment. This belief was based on the opinion of a third party which, subject to certain qualifications, stated that the scheme was risk free,” he said.
“However, it also reiterated that HMRC may not have shared that view and that there was some risk of a 55% penalty.
“She nonetheless decided against taking independent legal, accounting or tax advice before making the decision to proceed.
“Her belief that the scheme did not contravene pension’s legislation was not based upon reasonable grounds.
“She undertook little if any due diligence and an almost careless disregard of the risks that were inherent in the scheme. She chose not to consult an independent competent professional adviser. This was not a reasonable response.”