Savers with more than £1m in their pensions could take on the taxman

A judgment in a recent case that HM Revenue & Customs (HMRC) has decided not to appeal could see some savers with more than £1 million in their pension scheme being spared significant bills.

A recent case heard at a First Tier Tribunal (FTT) found on behalf of the taxpayer, Gary Hymanson, rather than HMRC, who argued that Mr Hymanson should lose his Lifetime Allowance (LTA) and pay 55 per cent tax on the amount he had inadvertently saved over the current limit of £1,055,000. They therefore revoked his £1.8 million fixed protection, resulting in a tax bill of £400,000.

The LTA, which was introduced in 2006, is the total value of pensions an individual can build up without facing a tax charge of up to 55 per cent on the excess. To avoid pension savers being retroactively penalised by legislative changes, three fixed protections were introduced: £1.8 million in 2012, £1.5 million in 2014, and £1.25 million in 2016. The current LTA limit is £1,055,000.

Fixed protection allows savers to protect their allowance from further reductions but means they can no longer contribute to their pension, or it becomes void. However, in this case, the saver was able to prove that his breach of the rules was accidental, which the judges said meant that the protection remained valid.

Mr Hymanson, who has four pensions, was granted a £1.8 million protection in 2012 on the basis that he cease further payments. However, although he understood that he could no longer pay into his main scheme, he did not realise he had to cease payments to two other schemes until 2015.

The judge accepted his explanation and the ruling gives hope to the more than 100,000 people who have secured fixed protection against past cuts in the LTA for tax relief purposes.

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