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Practical points - pensions

Guidance from ICAEW's Tax Faculty for practitioners on the latest developments in practice, policy and legislation related to UK pensions.

   Practical points
190 New pension lifetime allowance look-up service

The lifetime allowance look-up service for scheme administrators is now live on the GOV.UK website at Pension administrators: check your member’s protection status.

Pension scheme administrators can use the look-up service to check the lifetime allowance protection status of their members. To enable administrators to use this service members will need to give their pension scheme administrators their protection notification number and their scheme administrator reference number.

Members can find these reference numbers through their personal tax accounts.

The lifetime allowance was introduced in 2006 (prior to that there was no limit) and it is currently set at £1m. The table shows the allowance for each year.

Each time there has been a reduction in the allowance individuals have had the opportunity to protect their pension savings if these were in excess of, or likely to exceed, the new reduced limit.

Tax year          Standard lifetime limit

2006/07           £1.50m

2007/08           £1.60m

2008/09           £1.65m

2009/10           £1.75m

2010/11           £1.80m

2011/12           £1.80m

2012/13           £1.50m

2013/14           £1.50m

2014/15           £1.25m

2015/16           £1.25m

2016/17           £1.00m

Scheme administrators must report to HMRC when a member has a benefit crystallisation event, and:

  • the member’s total benefits are more than the lifetime allowance; and
  • the member has enhanced protection, fixed protection, fixed protection 2014 or individual protection 2014.

Benefit crystallisation events include taking a drawdown pension, becoming entitled to a pension, transferring a pension to an overseas scheme, or the death of the member under age 75. Full details can be found in HMRC’s Pension Tax Manual.

If the member has fixed protection 2016 or individual protection 2016 the administrator will need to contact HMRC for the reference numbers.

Any feedback on the scheme administrator look-up service can be given using the option on the GOV.UK pages or by emailing pensions.businessdelivery@hmrc.gsi.gov.uk and putting ‘lifetime allowance scheme administrator look-up service’ in the subject line of the email.

Contributed by Sue Moore

172 Late application for enhanced protection

In Twaite v HMRC TC06033, the First-tier Tribunal (FTT) has found that, while a taxpayer had a reasonable excuse for the late submission of his application for enhanced pension protection, the subsequent delay in submitting it was unreasonable. HMRC therefore did not need to consider the late notification.

The deadline for the taxpayer to make an application for enhanced protection was 5 April 2009. His notification was not made until 24 February 2015. HMRC refused to accept this late application.

The legislation says that a taxpayer may still give an effective notification, that is, a notification that HMRC is bound to consider, after the closing date. This is where the taxpayer has a reasonable excuse for not giving the notification on or before the closing date and the notification is given without unreasonable delay after the reasonable excuse ceased.

The FTT found that the taxpayer’s reliance on a specialist, who had made an error by failing to calculate the taxpayer’s pension correctly and advising that no protection was required, was a reasonable excuse.

The subsequent delay of 11 months from that excuse having ceased, however, was found to be unreasonable, and no allowance was made for delays caused by the financial advisers themselves. This is in contrast to Tipping v HMRC TC05939 (see practical point 131 in August 2017). In that case, the FTT found that the subsequent delay was reasonable as the financial advisers had themselves caused a large part of it.

The FTT in Twaite did go on to note that in any event the delays, excluding those caused by the financial adviser, were unreasonable.

From the weekly Tax update published by Smith & Williamson LLP

131 Autumn Finance Bill

The pensions lifetime allowance has been reduced several times in the last six years, and it now stands at £1m. Each time the allowance has been reduced there has been a time-limited opportunity for taxpayers to apply to protect their lifetime allowance at the higher level, or the level of their current pension savings. Tax and pension advisers need to understand this protection mechanism, and advise their clients in good time to make the application, as it can take months to collect the necessary pension valuations.

There have been a number of tribunal cases where taxpayers have appealed against HMRC’s rejection of an application for lifetime allowance protection. In A Tipping v HMRC (TC05939), Arthur Tipping applied for enhanced protection of his lifetime allowance in December 2014, although the deadline was 5 April 2009. He claimed to have a reasonable excuse for the late application as he relied on his financial advisers, who were part of the St James’s Place wealth management group.

The tribunal accepted that the failure of the financial advisers to inform Mr Tipping of the need to make the application was a reasonable excuse. Also, although it took 10 months for Mr Tipping to make the application once he was aware of it, most of that delay was caused by the advisers. The tribunal directed HMRC to accept the late application.