HM Revenue and Customs has withdrawn an appeal in a key court case, which could see savers who accidentally breached their lifetime allowance fixed protection terms spared from significant tax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.”