First-tier tribunal lifetime allowance ruling – what does it mean?

front tier

HMRC will not be appealing against the decision in Gary Hymanson v HMRC [2018] TC 6815 where the taxpayer mistakenly breached his £1.8m lifetime allowance.

HMRC has said “due to the particular circumstances of this case, it is not now appropriate to continue with the appeal to the Upper Tribunal.

Hymanson was a First-tier Tribunal case and as such does not set a legal precedent. It remains HMRC’s position that the appropriate forum for questions of mistake are the administrative courts and it is not appropriate for questions of mistake to be taken before the First-tier Tribunal.”

The case
In the case of Gary Hymanson v HMRC [2018] TC 6815, the taxpayer, Gary Hymanson, had obtained a fixed protection certificate for £1.8 million, (the 2010/2011 Lifetime Allowance) in 2012.

He had four pension schemes: one, the Light Pension Scheme, which he/his company paid into on an adhoc basis, annually, when funds allowed; two (with Standard Life and Reassure) where his/his company’s contributions were made by regular standing order; and another (with Reassure) where the only contributions paid in were national insurance rebates.

Whilst he realised that he/his company couldn’t make any more contributions to the Light Pension Scheme, he thought that the existing direct debits to his other two pension schemes could continue, provided he decided not to add any more to these two schemes.

As a result, Mr Hymanson did not take any steps to notify the bank to stop making those standing orders, which continued on a monthly basis until April 2015. (The error came to light when Mr Hymanson was organising his affairs due to a period of serious ill health.

The FTT decided that on the balance of probabilities Mr Hymanson did not cancel the standing order payments because he genuinely did not believe that there was a problem with continuing to make the existing payments. He did not understand, and could not see, the difference between rental payments, which his company was paying into the Light Pension Scheme and which were allowed to continue being paid into that scheme, and the regular standing order contributions being made to the other two pension schemes by both himself and his company. The FTT, therefore found that Mr Hymanson had a genuine belief that continuing to make the standing order payments would not prejudice his Fixed Protection.

On 24 August 2016, following various exchanges of correspondence, HMRC informed Mr Hymanson of their decision to revoke the Certificate of Fixed protection.

This meant that Mr Hymanson’s Lifetime Allowance reduced from £1.8 million to £1.5 million, which resulted in an immediate tax liability of around £50,000.
Mr Hymanson appealed.

Two main issues for the FTT to decide were what ruling would be likely if Mr Hymanson were to take his case to the High Court and whether the FTT should “apply the equitable maxim to treat ‘that which ought to have been done as having been done,’ and proceed on the basis that the additional payments should be ignored” for the purposes of Certificate of Fixed protection.
The FTT noted that the first payment after April 2012, of £62.50, which was sufficient for Mr Hymanson to lose this benefit, was a “totally disproportionate loss of tax” and it concluded that if Mr Hymanson had understood the tax consequences of his making the additional contributions he would not have done so. The FTT found that if Mr Hymanson were to take his case to the High Court then they would issue an order for rescission of these additional contributions because of his mistaken belief as to the tax consequences of the payments and that the “equitable maxim” should be applied so that Mr Hymanson’s tax position should therefore be determined as if that remedy had been granted.

However, the FTT had also decided that its jurisdiction in this case was purely supervisory. So, it could only interfere with HMRC’s decision to revoke the Certificate if it could find that their decision did not take into account relevant factors, or did take into account irrelevant factors, or was otherwise such that no properly directed officer could come to that conclusion.

In this case, the FTT judge said “it is quite clear that when they made their decision to revoke Mr Hymanson’s certificate HMRC did not take into account any possibility that the contracts under which Mr Hymanson 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. They were prepared to rescind the payments if they had been made by a bank in contravention of an instruction from Mr Hymanson but they did not consider the possibility that the payments could be rescinded because of Mr Hymanson’s mistake. This in my opinion was a very relevant factor which they did not take into account.”

So, the FTT found that HMRC’s decision was unreasonable and allowed Mr Hymanson’s appeal.

HMRC has now confirmed it will not appeal against this FTT decision.

Comment
This case revolves around a set of simple facts – an individual failing to realise they had to stop their pension contributions for Fixed Protection to apply. It seems, from HMRC’s comment, “particular circumstances of the case”, that it sees this case as something of a “one off” and so the lack of an appeal is unlikely to mean they will be changing their approach on such cases going forward. Also, as HMRC points out, FTT cases don’t set a legal precedent. So, it does not automatically mean that any taxpayer with a Fixed Protection certificate who has continued to contribute to a pension by mistake will be protected.