Good news for pensions savers from HMRC
HMRC has withdrawn its appeal over breaches of the pensions lifetime allowance.
Thousands of pension savers may be spared an expensive tax bill now that HM Revenue & Customs (HMRC) has withdrawn its appeal in a landmark legal case. The dispute could have implications for as many as 12,000 savers who have breached the terms of protection they were granted against going over the lifetime allowance (LTA).
Under the current LTA rules, anyone with total pension savings of more than £1,055,000 pays tax charges on the excess when cashing in their pension. But thousands are entitled to higher allowances, having applied to HMRC to protect their pensions from tax following reductions in the allowance, most recently in 2016. Crucially, however, some forms of this protection are only available to savers who agree to make no further pension contributions or accept any additional contributions from an employer. Breaches may mean they lose the protection, or incur a tax bill.
HMRC's tough line on this rule was last year successfully challenged in court by Gary Hymanson, who had been warned to expect a six-figure tax bill after falling foul of the system. After protecting his LTA at £1.8m, Hymanson forgot to cancel a standing order to one of his pension providers and made additional contributions as a result. Others who fell foul of the restrictions may now be able to avoid tax charges if they can show they made a genuine mistake, or if an employer has contributed on their behalf, for example. The principle established will also apply to those caught out in the future.
Seek specialist advice
The rules are further complicated by protection schemes offered to people in previous years when the LTA was cut; these affect the rights of savers applying for further protection. In practice, many people may need specialist financial advice to be sure of minimising their tax bill.