The case centred on Gary Hymanson’s claim that he had accidentally failed to cancel a direct debit to his pension scheme which, HMRC argued, should void his £1.8m lifetime allowance fixed protection.
The First-Tier Tribunal found the taxman’s decision to revoke Mr Hymanson’s fixed protection was unreasonable, and directed that it be reinstated.
The lifetime allowance – the limit on the amount of money that can be saved in a pension without triggering a tax charge - currently stands at £1,030,000.
There are three fixed protections in place – one from 2012 at £1.8m; 2014 at £1.5m; and 2016 at £1.25m.
This allows the member to protect the allowance from further reductions, but the saver can no longer contribute to their pension or it becomes void.
According to AJ Bell, until now the extent to which ‘genuine error rules’ could apply where savers mistakenly break these rules has not been explored.
While HMRC argued Mr Hymanson’s failure to cancel his standing order should render his fixed protection certificate worthless, Judge Philip Gillett ruled the accidental nature of the breach meant the protection remained valid.
Tom Selby, senior analyst at AJ Bell, said the ruling could have ramifications for others in a similar situation.
He said: "[It] 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.
"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."
It emerged this morning savers could lose their fixed protection and face a six-figure tax bill if they have contracted out benefits and their defined benefit (DB) scheme opts to convert them.
According to a freedom of information request (FOI) from Royal London, more than 100,000 people have secured fixed protection against past cuts in the lifetime allowance for tax relief purposes.
For those with GMPs the conversion could see them top up their pensions and incidentally breach the protection.
The issue stems from the Lloyds case in October when the High Court ruled that trustees of the bank’s pension scheme must equalise benefits between women and men who have guaranteed minimum pensions (GMPs) because of contracted out benefits.
Alistair Cunningham, financial planning director at Wingate Financial Planning, said: "It’s good to see a pragmatic approach, but naturally I would be horrified if a client of mine was in this position.
"The best approach for most people will be to seek advice and be rigorous in following the rules."
maria.espadinha@ft.com
