TaxApr 27 2021

Saver avoids LTA charge after receiving poor advice

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
Saver avoids LTA charge after receiving poor advice

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.

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.  

The tribunal found Gammell only became aware that he could make a late application in August 2016. 

Given that it takes time to appoint a new adviser, and ignoring the month lost by illness of the staff member of the former adviser, the period of three months between August 2016 and December 2016 when the late application was submitted to HMRC, was in its view “sufficiently diligent and expeditious”.

Therefore the appeal was allowed.

At Budget this year, chancellor Rishi Sunak said the LTA will stay at its current level of £1,073,100 until April 2026, instead of increasing in line with the consumer price index. 

John Hood, a tax partner at Moore Kingston Smith, said: “The frozen pension lifetime allowance will cause more prudent savers to exceed the allowance and suffer 60 per cent tax rates on their pensions.

“Well advised savers can avoid this tax charge by claiming protection for their pension but only if they do so within time limits which HMRC strictly enforce.”

He added: “Mr Gammell missed the relevant time limit and was potentially facing a large liability on his lifetime’s savings. The first-tier tax tribunal has come to his rescue by allowing his claim to be made late as his financial advisor had let him down which was viewed as a reasonable excuse. 

“Crucially, that there was no unreasonable delay on his part once he became aware of the problem.”

amy.austin@ft.com

What do you think about the issues raised by this story? Email us on FTAletters@ft.com to let us know