HMRC opened up to fresh claims on lifetime allowance protection

HMRC has lost a “key” court case on lifetime allowance pensions which could open it up to more claims from investors who have “accidentally” forgotten to stop contributing to their scheme.

Last November, Judge Philip Gillett ruled that because the breach was accidental, the protection the claimant received to his lifetime allowance following the decrease in the allowance from £1.8m to £1.5m announced in March 2011, was still valid.

Members who applied for fixed protection were able to keep the £1.8m lifetime allowance, but were not able to make any further contributions to the scheme, which could result in a six figure tax bill.

HMRC argued that, following his continued contributions, his £1.8m fixed protection should be void.

AJ Bell senior analyst, Tom Selby, said: “This ruling potentially drives a coach and horses through HMRC’s hardline application of the lifetime allowance rules.

“It is refreshing to see the judge take a pragmatic approach in this case, particularly given the sheer complexity of the pension system UK savers are forced to navigate.”

Introduced in 2012, fixed protection was designed to ensure people who risked going over the lower lifetime allowance limit of £1.5m, down from £1.8m in March 2011, were not unfairly penalised.

There are a number of other protections in place including enhanced protection, and three levels of fixed protection, all of which can be lost if contributions are paid.

“It seems perfectly reasonable in the case of a genuine mistake such as this that the intention of the individual should be the main consideration, rather than blindly following the rules. Whether this forces HMRC to rethink its aggressive approach remains to be seen, however,” Selby added.

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