In Alan Twaite v HMRC TC06033, the First Tier Tribunal (FTT) considered whether reliance on an adviser was a reasonable excuse for late notification of enhanced protection for a pension scheme.
If pension benefits are drawn in excess of the lifetime allowance, a tax charge (of 25% or 55%) arises. As the allowance has fallen year on year, an individual can apply for the higher limit to continue to apply (“enhanced protection”); the time limit for this is three years from the end of the tax year in question. A late application can be accepted where the taxpayer has a Reasonable Excuse.
- Mr Twaite sought to preserve his 2006 lifetime allowance (deadline 5 April 2009).
- In March 2006, his pension advisers prepared a report indicating he was not eligible for enhanced protection. He noted that one of the pension figures was incorrect, and his advisers said this would be reviewed prior to the deadline.
- In January 2014, a new adviser (at the same firm) noted the absence of enhanced protection and that the pension income had been markedly higher than anticipated in 2006. On 13 March 2014, the need for enhanced protection was confirmed.
- On 17 June 2014, the adviser’s compliance officer sought further information from Mr Twaite, which was provided on 19 June, in order to ascertain whether a late claim could be made to HMRC.
- On 15 December 2014, the advisers contacted Mr Twaite to confirm he position; he responded to request that they proceed with the late application, which was signed on 2 February 2015 and submitted to HMRC om 24 February.
- HMRC rejected the application on 6 August 2015; this was appealed then an internal review requested but HMRC rejected both.
Mr Twaite contended that it was only with the letter on 15 December that it became clear that a late notification was needed and so the question of unreasonable delay should run from this date.
The FTT found:
- Mr Twaite had a reasonable excuse.
- He had engaged a specialist pensions adviser and followed the advice given
- This occurred while he was suffering heart problems
- He had informed his advisers of the suspected error and this should have been sufficient to ensure they corrected the position
- The advisers had been otherwise competent and given no reason for concern
- While other taxpayers might have investigated further, reliance on the adviser was not unreasonable under the circumstances
- The delay between the end of the excuse and submission was unreasonable.
- The reasonable excuse ceased on 13 March 2014 when the advisers informed him that enhanced protection should have been applied for and the 15 December letter merely confirmed this.
- Lack of knowledge that a late application could be made was not a reasonable excuse for missing the deadline and in any caseTwaite was aware of the possibility in June 2014
- Also, the question of delay is not restricted to the taxpayer delay by the adviser counts towards whether it is unreasonable.
- No explanation was given for the long delays by the adviser, however, a reasonable taxpayer would have pressed the issue sooner or sought advice from a third party
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Pensions: tax rules and planning