The victim of a pension fraud has successfully appealed a tax charge from HM Revenue & Customs after the court concluded HMRC was wrong to assume there had been an unauthorised payment made from her pension.
Elizabeth Hughes was levied a £5,500 tax charge after transferring her occupational pension to a scam and then taking out a loan from a company linked to the scammers, as HMRC deemed the loan to have been an unauthorised payment made from her pension.
But the First Tier Tribunal ruled on October 23 that the tax charge relating to her £10,000 loan should be quashed after it found there was not a sufficient paper trail to prove the payment was made from her pension.
The £5,500 charge was made up of £4,000 in income tax charged at 40 per cent on the sum of £10,000 and a £1,500 surcharge.
The charge came about after claimant Ms Hughes sought to consolidate her pension savings and as a first step transferred one of her occupational pensions to a new arrangement.
But she was targeted by a pension scam ran by Fast Pensions, which was closed by the Insolvency Service in 2018.
The tribunal heard that Fast Pensions had contacted Ms Hughes about the pension transfer in July 2012 and subsequently moved the whole amount of £31,267 from her occupational pension to a pension held with Fast Pension.
Around the same time in 2012, Miss Hughes took out a loan to finance the completion of her PhD, which she believed to be a separate and unrelated transaction.
However, this £10,000 loan was arranged through Blu Funding, which was connected to Fast Pensions and has also now been closed down.
Because the loan was secured by Blu Funding, the tax authority pursued Ms Hughes for 55 per cent tax on the loan she had taken out.
This is because to HMRC the loan had come from the pension and should therefore be treated as an unauthorised payment from her pension scheme.
But Judge Christopher McNall accepted that Ms Hughes was unaware that these two events could be linked.
Judge McNall said: “We accept her evidence that, when she decided to change her pension arrangements, her purpose was not to release pension funds from her scheme before the age of 55.
“We accept that her purpose in taking out the loan was different. It was to give her some financial support whilst undertaking the third year of doctoral studies in urban regeneration at Staffordshire University.”
He also found there was insufficient evidence linking the loan received to the transferred pension savings.
HMRC had argued that Ms Hughes had either received the loan from her pension via a third party, this being Blu Funding, or that she received the payment out of an investment made by the Fast Pension fund in Blu Funding.
But the judge dismissed both of these arguments and decided that no unauthorised payment was made.
Judge McNall also said even if the tribunal had found that there was an unauthorised payment, leading to a 40 per cent tax charge, it would have found against HMRC in relation to the 15 per cent surcharge as in the circumstances the surcharge would not be “just and reasonable”.
David Everett, partner at LCP, said: “There is no doubt that some individuals have knowingly broken the law to gain access to their retirement savings before they are allowed to, but there are also many cases where the individual is a victim, plain and simple.
“The law unfortunately does not generally distinguish, other than when it comes to the 15 per cent surcharge.”
An HMRC spokesperson said: “We are carefully considering the judgement.”
amy.austin@ft.com
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