Savers who accidentally exceed their lifetime allowance could be spared huge tax bills after HM Revenue & Customs has withdrawn its appeal in a battle over a 55 per cent charge it wanted to levy.
The case centered on Gary Hymanson’s claim that he had accidentally failed to cancel a standing order to his pension schemes which led to him breaching his lifetime allowance.
In 2012 Mr Hymanson took out a £1.8m lifetime allowance fixed protection but he then failed to cancel a standing order that automatically paid money into his retirement funds.
There are three fixed protections in place – one from 2012 at £1.8m; 2014 at £1.5m; and 2016 at £1.25m.
The lifetime allowance – 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.
Mr Hymanson had four pensions and understood that he could not make any further lump sum contributions to his main scheme, but 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.
The First Tier Tribunal found in Mr Hymanson’s favour, ruling the accidental nature of the rule breach meant he should retain a lifetime allowance of £1.8m.
HMRC was to appeal but has now withdrawn its case, according to the HM Courts & Tribunal Service’s Upper Tribunal register (updated May 24).
Tom Selby, senior analyst at AJ Bell, said: "Anyone who has accidentally breached their fixed protection by contributing into a pension in error now has a strong case to go back to HMRC where a tax charge has been applied.
"The numbers involved could be significant - an AJ Bell Freedom of Information request recently found over 12,000 investors have notified HMRC they have lost one of the various forms of lifetime allowance protection introduced since ‘A-Day’ in 2006.
"Furthermore, anyone in future who accidentally breaches their protection – for example by being automatically enrolled without appreciating the consequences – could challenge the loss of the protection and any tax penalty the Revenue might try to impose as a result."
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