Tax  

Saver faces £1.5m tax bill after adviser pension protection error

Saver faces £1.5m tax bill after adviser pension protection error

A pension holder is facing a £1.5m tax bill after a first tier tribunal found he had unreasonably delayed applying for enhanced protection on his pension.

The case centred on whether Donald Ketley had a reasonable excuse for filing for enhanced protection late, as well as whether he took unreasonable delay in making his application.

Enhanced protection allows the pension fund to grow to any amount without it being subject to the lifetime allowance.

It was available to taxpayers who submitted a form to HM Revenue and Customs before April 5, 2009 but the tax authority has discretion to accept late applications where the taxpayer has a reasonable excuse.

The court heard how Mr Ketley had built up a pension fund worth £5.2m by 2006 when the government first introduced a lifetime allowance of £1.5m.

Mr Ketley was aware of these changes and the possibility of using enhanced protection to protect his pension fund from being affected.

He therefore instructed his financial adviser to apply for enhanced protection on his behalf.

But in October 2015, and after a change of adviser, Mr Ketley was made aware that HMRC had not received his application and that he did not have a certificate from HMRC confirming protection was in place.

On the back of this, Mr Ketley looked into whether he could bring a professional negligence claim but he did not contact HMRC to rectify the matter until August 2016 - 10 months later.

A new application form was then submitted in December 2016.

Mr Ketley argued he had a reasonable excuse for the late filing of his application as he had relied on his adviser to submit the form and had no reason to doubt his competency.

But HMRC said this did not count as a reasonable excuse and that Mr Ketley was responsible for an unreasonable delay when he filed the forms 10 months after he realised there was an issue with his protection.

The first tier tribunal found in March this year it was reasonable for Mr Ketley to rely on his adviser to submit the application despite his being financially literate himself.

He therefore had a reasonable excuse for the delay in submitting his application.

However, the tribunal said this excuse ended in October 2015 when he found out that HMRC had not received his form and no protection was in place.

Tribunal judge Ian Hyde said: “We accept HMRC’s argument that as a financially aware retired businessman, conscious of the very significant consequences of not having enhanced protection, he did not take the steps a reasonable taxpayer would have done. 

“Thus he did not contact or instruct his advisers to contact HMRC and/or to look at the pensions legislation and guidance to see if anything could be done.”

Therefore the court concluded the 10-month delay was unreasonable and HMRC was right and entitled to decline the late application.

Mr Hyde said: “Each of these cases must be determined on its facts and we find that a reasonable taxpayer in the appellant’s circumstances would have contacted HMRC and/or investigated the pensions legislation to find out if there was a remedy.”