Fixed Protection 2012 - is it bust in this case?

Colinstewart76

Hi all

Searching the hive mind for experience or opinions on this one.

We have a client who had Fixed Protection 2012 (£1.8 million LTA). His accountant, knowing nothing about the LTA, recommended the client make a pension contribution in 2014 which he did - which would normally result in FP2012 being lost. Having realised the error, however, the contribution was cancelled and refunded to him.

Question is, in light of the cancelled premium, is it reasonable to assume his FP2012 hasn't actually been lost? He's since applied for IP2014, but I think that unless he's actually told HMRC that FP2012 has gone, it's still there. Am I right?

Colinstewart76

As a follow up, the adviser has told me that HMRC told the client that, even though the contribution was cancelled and refunded, he's had relevant accrual and therefore FP2012 has certainly been lost. Hmmmm.

arongunningham

EDIT: Changed my mind. I now think it depends what it says on his tax-return. How do HMRC know that he temporarily broke the rules?

EDIT2: You're right **not ** to assume the accountant knows what he's talking about.

Colinstewart76

@arongunningham said:
EDIT: Changed my mind. I now think it depends what it says on his tax-return. How do HMRC know that he temporarily broke the rules?

I think the client volunteered the information to HMRC in this case and asked for their guidance. I only found this out after my original post.

arongunningham

yeah, bummer. Doing the honest thing seems like it's cost him.

Colinstewart76

Difficult to work out the true cost, but it's definitely north of £150k

benjaminfabi

Hi Colin

Fixed Protection has been lost. HMRC is correct. Relevant Accrual has occurred

Responsibility
The member is responsible for testing for benefit accrual because they have made a signed the declaration to this effect when they applied for their fixed protection. However, a member may need to ask their pension scheme administrator for information to help them carry out the test.

When to test for benefit accrual
For an other (i.e. non-cash balance) money purchase arrangement the test is whether or not there have been any relevant contributions made. The test is therefore carried out at the time any contribution is made. If no relevant contributions are made to the arrangement then the member will not lose their fixed protection.

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm093700

Colinstewart76

Thanks both

DanAtkinsonUK

I think there was a case recently where FP was retained due to the 'genuine error' provisions in general law.

It may be worth taking a look at it (found the link in my emails) and considering getting the client to appeal HMRC's position. This was from a STEP newsletter in November I think, so I don't know if that got appealed again by HMRC.

http://financeandtax.decisions.tribunals.gov.uk//judgmentfiles/j10780/TC06815.pdf

DanAtkinsonUK

If the potential 'gain' is £150k really worth pushing this hard. Might be necessary for the client to lawyer up though...

DanAtkinsonUK

If you don't want to wade through the tribunal doc (personally I find these disturbingly interesting) this is a really good quick summary. https://www.sackers.com/pension/hymanson-v-hmrc-first-tier-tribunal-13-november-2018/
Can't see any indication online (I have consulted the mighty google) that HMRC are appealing :-)

benjaminfabi

This looks like a good avenue for enquiries,great links Dan!

Colinstewart76

Thank you Dan, that's really interesting. I doubt this client is motivated to go down the legal challenge route - they explored it a while ago I think. He's shrugged it off as more of an irritation than a problem, reading between the lines.