HMRC backs down from pension tax case

HM Revenue and Customs (HMRC) has recently withdrawn an appeal in a key court case over a 55 per cent charge it wanted to levy.

As a result, this could mean savers who have accidentally breached their lifetime allowance fixed protection terms could be 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.

In 2012, Mr Hymanson took out a £1.8 million lifetime allowance fixed protection but then failed to cancel a standing order that automatically paid money into his retirement funds.

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

The lifetime allowance is the limit on the amount of money that can be saved in a pension without triggering a tax charge has been cut a few times in the past few years and currently stands at £1,055,000.

While Mr Hymanson understood that he could not make any further lump sum contributions to his main scheme, he did not realise that he had to stop the standing orders to the other schemes until 2015.

Due to this HMRC revoked his fixed protection, reducing his lifetime allowance.

However, the First Tier Tribunal ruled in Mr Hymanson’s favour, after deciding the breach was accidental in nature, meaning he could retain a lifetime allowance of £1.8 million.

According to the HM Courts & Tribunal Service’s Upper Tribunal, HMRC was weighing up a challenge but has confirmed it has now withdrawn its case.

Individuals who have accidentally breached their fixed protection by contributing into a pension in error have a strong case to go back to HMRC where a tax charge has been applied.