The First-tier Tribunal (“FTT”) has found that HMRC’s decision to revoke Mr Hymanson’s fixed protection was unreasonable, and directed that it be reinstated.
The Lifetime Allowance (“LTA”) is the total amount of tax-relieved pension savings that an individual can build up over their lifetime without incurring an additional tax charge.
Fixed Protection 2012 was introduced to allow individuals to maintain an LTA of £1.8 million when it reduced, on 6 April 2012, from £1.8 million to £1.5 million. In exchange for Fixed Protection, contributions to a DC arrangement by or on behalf of the individual had to cease, and an individual could not build up additional DB pension above an allowable “relevant percentage”. The ability to transfer pension benefits is also restricted. If the conditions are not met, Fixed Protection is lost.
Judge Philip Gillett found the following as matters of fact:
HMRC informed Mr H that the only situation in which they would agree that a person had not lost Fixed Protection would be if the person had asked their bank to stop the pension payments but the bank had failed to act. Mr H had no evidence this was the case and therefore HMRC revoked the protection.
Mr H appealed to HMRC but, after an internal review, they reaffirmed their decision.
Mr H appealed to the FTT.
The judge was satisfied that Mr H had mistakenly continued to make pension contributions not in ignorance but due to a “genuine conscious belief” that it was acceptable to do so. This belief came about due to Mr H’s genuine confusion as to why the company could continue to pay rent to his main pension scheme but neither he, nor the company, could continue to make pension contributions.
In this case, the FTT’s jurisdiction was purely supervisory. This meant that it could only interfere with HMRC’s decision to revoke Mr H’s Fixed Protection if it found that HMRC’s “decision did not take into account relevant factors, did take into account irrelevant factors, or was otherwise such that no properly directed officer could come to that conclusion”.
The judge considered it “quite clear that when they made their decision… HMRC did not take into account any possibility that the contracts under which Mr H continued to make payments to the pension schemes might be void as a result of mistake, even though the relevant arguments had been put to them at that stage”. In his opinion, this was a “very relevant factor which they did not take into account”. He therefore found HMRC’s decision was unreasonable.
The judge then considered whether the consequences of Mr H’s mistake were sufficiently serious as to merit the remedy of rescission. Mr H’s continued payments totalled approximately £7,000. His lost tax was estimated at £50,000. The judge considered this “disproportionate” and that had Mr H understood the tax consequences of the additional contributions he would not have made them. Therefore, were Mr H to bring his case to the High Court, the High Court would issue an order for rescission of the additional payments on the basis of Mr H’s mistaken belief as to the tax consequences. As a result, Mr H’s tax position should be determined as if that remedy had been granted. On that basis, the judge considered himself able to apply the equitable maxim to treat “that which ought to have been done as having been done” or, “in this case, ‘that which should not have been done should be treated as not having been done’” and proceed on the basis that the additional payments should be ignored.
Mr H’s appeal was allowed and HMRC was directed to issue him with a new Fixed Protection certificate.
This is a surprising decision, seemingly based very much on its facts. HMRC may well appeal.