The outcome of a recent court case could mean that some savers, with more than £1 million in their pension scheme, will be spared from paying significant bills.
The judge of a recent case, between taxpayer Gary Hymanson and HMRC, concluded that HMRC needed to revoke its decision on forcing Mr Hymanson to lose his Lifetime Allowance (LTA) protection and pay 55 per cent tax on the amount he had inadvertently saved over the limit of £1,055,000.
Mr Hymanson, who has four pensions, was granted a £1.8 million protection in 2012 on the basis that he would stop making further payments. However, although he understood that he could no longer pay into his main scheme, he did not realise he had to cease payments to two other schemes until 2015.
Due to the extra payments, HMRC made its initial decision, and when appealing this in the First Tier Tribunal (FTT), Mr Hymanson told the judge that he had made an honest mistake, which the judge accepted.
The LTA, which was introduced in 2006, is the total amount of pension savings an individual can build without facing a tax charge of up to 55 per cent. To avoid pension savers being retroactively penalised by legislative changes, three fixed protections were introduced: £1.8 million in 2012, £1.5 million in 2014, and £1.25 million in 2016. The current LTA limit is £1,055,000.
The LTA allows savers to protect their allowance from further reductions but means they can no longer contribute to their pension, or it becomes void. However, in this case, the saver was able to prove that his breach of the rules was accidental, which the judges said meant that the protection remained valid.
The ruling gives hope to the more than 100,000 people who have secured fixed protection against past cuts in the LTA for tax relief purposes.
To find out more about how Kirk Newsholme Financial Planning can help, please contact Richard Leonard at Richard.Leonard@knfp.co.uk or by calling 0113 204 4215.