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Direct debit mistake not a breach of LTA fixed protection judge rules

28 February 2019

A recently published court ruling has said that an individual who claimed that he had accidentally failed to cancel a direct debit to his pension scheme, should not lose lifetime allowance protection. 

HMRC had argued to the court that the continued payment should render his £1.8 million lifetime allowance fixed protection void.

Fixed protection was introduced in 2012 following the cut in lifetime allowance from £1.8 million to £1.5 million, as a means to ensure people who risked exceeding the new, lower threshold were not unfairly penalised. Those who applied could continue to benefit from a £1.8 million lifetime allowance but were not allowed to make any further pension contributions. Doing so would potentially open the member up to a hefty six-figure tax bill.

While HMRC argued that the appellant’s failure to cancel his standing order should result in his fixed protection certificate becoming worthless, the Judge ruled in favour of the appellant stating that the accidental nature of the breach meant the protection remained valid.

Tom Selby, senior analyst at AJ Bell, says the ruling potentially “drives a coach and horses” through HMRCs’ hardline approach to the lifetime allowance rules.

He said: “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,” Selby added.

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