Join more than 165,000 subscribers and keep yourself informed with the latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
You are now subscribed
Your newsletter sign-up was successful
Want to add more newsletters?
An account already exists for this email address, please log in.
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HMRC has withdrawn its appeal over breaches of the pensions lifetime allowance.
Thousands of pension savers may be spared an expensive tax bill now that HM Revenue & Customs (HMRC) has withdrawn its appeal in a landmark legal case.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.
Try 6 free issues of MoneyWeek today
Get unparalleled financial insight, analysis and expert opinion you can profit from.
Sign up for MoneyWeek’s free twice-daily newsletter.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
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.
Join more than 165,000 subscribers and keep yourself informed with the latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
David Prosser is a regular MoneyWeek columnist, writing on small business and entrepreneurship, as well as pensions and other forms of tax-efficient savings and investments. David has been a financial journalist for almost 30 years, specialising initially in personal finance, and then in broader business coverage. He has worked for national newspaper groups including The Financial Times, The Guardian and Observer, Express Newspapers and, most recently, The Independent, where he served for more than three years as business editor.
