Saver avoids LTA charge after receiving poor advice

Saver avoids LTA charge after receiving poor advice

A court has overturned HMRC’s decision to refuse a late claim for enhanced pension protection after it found the saver had relied on bad advice and therefore had a reasonable excuse for his delay.

The First Tier tribunal found Mr Gammell was not correctly advised by his financial advisers with regards to applying for enhanced protection to avoid a lifetime allowance tax charge.

It found his advisers had provided him with a reasonable excuse for making a late claim and that he had made the claim without unreasonable delay after he was made aware of his situation.

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What happened

The lifetime allowance is the maximum amount an individual can build up in all of their registered pension schemes without incurring a tax charge and it was introduced April 6, 2006, otherwise known as A-Day.

At the time, the legislation contained transitional provisions which gave protection to individuals against the lifetime allowance charge, including enhanced protection.

The application window for enhanced protection was from April 2006 to April 2009 but HMRC had a late application process for those with ‘reasonable excuses’ for missing the deadline.

The tribunal heard how Gammell appointed advisers in 2001, who assisted him with his pensions and investments. 

But Gammell received no advice about enhanced protection in 2006 from those advisers or at any time after.

In 2009, Gammell swapped his adviser but enhanced protection was still not brought to his attention nor was he advised about the 2012 fixed protection limit of £1.8m.  

Following his adviser’s recommendation, Gammell applied for and received the 2014 lifetime allowance of £1.5m in August 2013.

In 2015, when Gammell considered changing advisers, a prospective new adviser alerted him to the failure to apply for fixed protection in 2009.

He took up the issue of the missed application with his existing advisers in December 2015, but it was not until August 2016 that he was informed that there was the possibility of applying late for enhanced protection and that he should do so. 

After obtaining additional information and a month’s delay caused by the illness of a staff member of his, by then, former adviser, Gammell’s claim was submitted in December 2016.

But HMRC refused his application.

The appeal

Under regulation, a late claim can be made if a two-stage test is met. First, there must be a reasonable excuse, and if there is then notification must be given without unreasonable delay after the reasonable excuse ceased. It also provides for the right of appeal to the tribunal.

HMRC had said that Gammell had a reasonable excuse until October 2015 because he had relied on advisers but it argued he had then delayed unreasonably in submitting the relevant form.

But the First Tier Tribunal found he “acted promptly and reasonably once he had good cause to believe that he faced serious and wholly unexpected problems”.  

It found Gammell followed up the situation, after weighing it carefully, and the steps in the process were documented in letters and emails.