The first tier tribunal recently decided a case that involved, what was described as, a ‘pensions liberation scheme’. The taxpayer concerned had a very modest pension pot of just £55,000 in two approved pension schemes.
In 2001, after he was cold called by promoters of the tax avoidance ploy, his accrued pension benefits of around £55,000 were transferred into the Holme Limited Pension Plan (HLPP). This was administered by a company named Holme Limited, which had been set up by a third party.
The promise here was that the taxpayer could get his hands on 80% of his £55,000 accrued pension benefits. The financial cost of doing so was a 20% commission (about £11,000) to the promoter. The taxpayer was also obliged to obtain employment with Holme Limited.
Once his pension funds were transferred the intention was that HLPP would buy an annuity which he could use as security for an interest-free loan. HMRC argued that the annuity would never be paid to the employee and the loan would never be called in.
The taxpayer argued that the employment was genuine and that he had not participated in the pension arrangements. The Tribunal considered him to be an unreliable witness and the employment contract to be a sham.
The Tribunal found that, as there was no employment contract, there was an unauthorised transfer of funds out of the authorised pension schemes. This resulted in the taxpayer being liable for tax of over £18,000 on the funds concerned together with a 30% penalty for negligently filing an incorrect tax return.
According to my maths this means that overall, having started with accrued pension benefits of £55,000 , the taxpayer was left with only £20,000 and lost the potential of any future tax free growth in his pension fund.
The promoter meanwhile secured around £18,000 and had probably shared none of the worry leading upto the Tribunal hearing. And I'll bet he assured the poor taxpayer that the scheme was all above board, fully disclosed and had been very successful for many other clients. Don't they always?
[An excellent synopsis btw, as ever]
ReplyDeleteIt hardly sounds like an equitable outcome.
Although we, as chartered accountants, would probably sagely cross our arms and say "Should've contacted a chartered accountant or other professional tax adviser..." that's probably what the individual thought they had been doing.
And the government and DWP should accept their share of the shame too, for making pensions so flipping complicated.
And another, from 2008.
ReplyDeletehttp://bit.ly/dmxAd8