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Lifetime allowance lifeline granted as HMRC withdraws appeal in key case

Rope-barrier-event-entry-700.jpgHM Revenue and Customs has withdrawn an appeal in a key court case, which could see savers who accidentally breached their lifetime allowance fixed protection terms spared from significant tax bills.

The tax authority had argued that in a case against one individual, Gary Hymanson, who failed to cancel a direct debit to his pension scheme, this should void his £1.8m lifetime allowance fixed protection, even though the breach was accidental.

Hymanson and others could have been left with a six-figure tax bill as a result, as his unprotected lifetime allowance would drop by some £800,000, incurring a 55 per cent tax charge above this level.

While a tribunal had initially found in favour of Hymanson, HMRC was weighing up a challenge, but has confirmed it will now not do so.

AJ Bell senior analyst Tom Selby says: “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 – we 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.”

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. Martin Tilley 3rd June 2019 at 9:25 am

    Amazing that HMRC would throw in the towel in this case, where the definition of “genuine error” was pushed to the boundaries…Potentially opens the door for anyone who has lost protection to claim “genuine error”. Whether or not they have a case, this is just going to add administrative burden to HMRC in considering them..

    • I’m not so sure. The circumstances are reasonably unique and the FTT was fairly precise in laying out what HMRC had been deficient at. Going further would risk opening this up a bit more, at present this is going to apply to protection cases to be highly disproportionate. HMRC will be able to set that out in internal manuals and this is simply an exercise in limiting the extent of relaxation of genuine error.

      • Apparently an escape on a technicality then. The full FTT judgement does make for an interesting read. Advice, confusion and equitable relief all thrown into the mix!

        • Peter Hopkins 3rd June 2019 at 2:11 pm

          Not sure I’d call it a technicality, more the tribunal doing its job and defining the line more clearly; if only for a small number of cases.

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