Marzenka Opalinska
- Trainee Solicitor
- IP & Commercial
The recent case of Lefort v HMRC [2024], featuring one of Wedlake Bell’s very own Pensions Compass articles, serves as a costly reminder to fixed protection holders that inadvertent pension contributions will not be treated favourably by HMRC or the First-tier Tax Tribunal (“FTT”).
| Key Points: • Mr Lefort’s fixed protection was revoked when his former employer made a pension contribution on his behalf after the statutory cut-off date, despite Mr Lefort’s claim that the payment was a mistake. • Wedlake Bell’s previous article, ‘Hope for Those Who Have Lost HMRC Protection Against the Lifetime Allowance’ (March 2019), was admitted as evidence by Mr Lefort as he claimed it was materially relevant to his case. |
Background
Between 6 April 2006 and 6 April 2024, the maximum benefits a member can save through registered pension schemes was capped at the former lifetime allowance (“LTA“). Benefits in excess of the lifetime allowance were subject to a lifetime allowance charge. The LTA changed over time. It was £1.5million when it was first introduced and settled at £1,073,100 before it was abolished. Members had the option of applying for fixed protection to protect accrued benefits against a higher LTA to mitigate against or remove any LTA charge on benefits in excess of a reduced LTA which may have applied from time to time.
In Mr Lefort’s case, the FTT considered an appeal against HMRC’s decision to revoke Mr Lefort’s fixed protection status following a payment made by his former employer, Virgin, one month after the cut-off date.
Wedlake Bell’s Pensions Compass Article
Readers may recall our article from March 2019, in which we covered the FTT’s decision in Hymanson v HMRC [2018]. A copy of our article can be found here.
Here, the FTT was prepared to ignore an overpayment of contributions for the purposes of fixed protection on the ground of mistake. In the Wedlake Bell article, we noted the FTT’s comment that Mr Hymanson had suffered “a totally disproportionate loss of tax”.
In Lefort v HMRC, Mr Lefort cited the 2019 Wedlake Bell article in his evidence as being materially relevant to his appeal against HMRC. Whilst the FTT allowed the article to be admitted as evidence, ultimately, the FTT found against Mr Lefort and disagreed with the decision in Hymanson v HMRC [2018].
The FTT’s Decision
Mr Lefort, appearing as an unrepresented appellant, argued that Virgin had made the pension contribution, which cost him his fixed protection status, later than it should have done and, in the alternative, argued that he was not entitled to the contribution having already left employment. He contended that HMRC should therefore have exercised its discretion in his favour and upheld his fixed protection certificate.
The FTT found that the statutory conditions for HMRC to revoke Mr Lefort’s fixed protection certificate were met (Regulation 11 of the Registered Pension Schemes (Lifetime Allowance Transitional Protection) (Notification) Regulations 2013 (the “Regulations“)). A payment of a ‘relevant contribution’ had been made. Accordingly, HMRC was entitled to revoke his fixed protection certificate.
The FTT held that it did not matter that Mr Lefort was not employed when the pension contribution was made. It also held that the FTT does not have jurisdiction to grant rescission of the pension contribution, which is an equitable power reserved by the High Court or the Upper Tribunal to grant.
Whilst Mr Lefort attempted to rely on HMRC’s discretionary powers, as was the case in Hymanson, the FTT did not follow this argument. A strict approach was adopted and it was held that no such discretion existed under the Regulations.
A copy of the full judgment can be found here.
Wedlake Bell Comment
Unfortunately for Mr Lefort, even if the FTT did have power to treat the pension contribution as rescinded, it probably would not have done.
The problem the FTT was grappling with is that, in practice, the pension contribution would have remained in the SIPP as the employer had declined to refund the pension contribution. So if the FTT had treated the pension contribution as rescinded, Mr Lefort would have got a ‘double advantage’ i.e. i) the pension contribution would have remained in his SIPP; and ii) he would have benefitted from a more favourable tax position.
If Virgin had agreed to return the contribution, would the result in this case have differed? Possibly. However, this is very much dependent on the facts of each case. In Lefort, there appeared to be insufficient evidence that the employer would be open to returning the contribution. The FTT held HMRC was entitled to revoke the fixed protection certificate in Mr Lefort’s circumstances.
In Hymanson, the FTT went the other way. The FTT found that had Mr Hymanson realised the consequences in continuing to pay additional pension contributions, it was inevitable that he would have stopped the direct debit payments. Based on the evidence, the FTT was convinced that the High Court would have ordered rescission of the contributions and reinstated the fixed protection and so ruled accordingly.
On the face of it, there are two similar FTT decisions with opposite conclusions. A relevant factor seems to be whether it was inevitable that the pension contribution would have been refunded if rescission was granted. However, given that the FTT is not bound by its previous decisions and indeed, did not follow Hymanson, this reflects each case turns on its own facts.
As we noted in 2019, we expect there are many other individuals who have lost their fixed protection as a result of ‘mistaken’ payments. We shall have to wait and see the outcome of future cases, noting that the decision in Lefort v HMRC is not binding on any subsequent tribunal faced by the same issues.
If you have any questions concerning this case or the loss of fixed protection, let us know. We would be happy to discuss.
Meet the team:
Paul Ashcroft
- Senior Associate
- Pensions & Employee Benefits
