Genuine breaches of lifetime allowance extended a tax bill lifeline

3 June 2019

Pension savers who mistakenly breach their lifetime allowance could be spared huge tax bills after HM Revenue & Customs dropped its appeal in a landmark 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 according to HM Revenue & Customs, made him liable to lose his £1.8 million lifetime allowance ‘fixed protection.’

Hymanson, who has four pensions, was granted the protection in 2012 on the basis he cease further payments. However, Hymanson failed to cancel payments into all of his schemes, resulting in the tax office revoking his fixed protection.

The loss of protection could have left Hymanson facing a hefty tax bill as his lifetime allowance would revert back to £1,055,00, with any excess above this exposed to a tax charge of 55%.

However, in November, the first-tier tribunal ruled in Hymanson’s favour, arguing that the accidental nature of the breach meant he should be allowed to retain his lifetime allowance.

HM Revenue & Customs has now announced its intention not to appeal the ruling, in what experts say could provide a strong case to other savers who endure the same treatment from HM Revenue & Customs.

Tom Selby, senior analyst, AJ Bell, said: “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.”

Selby added that anyone who accidentally breaches their protection in future, possible by being automatically enrolled without understanding the consequences, could also challenge the loss of protection and tax penalty.

Professional Paraplanner