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Lost pension form leads to £1m tax bill

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Bungles by advisers, the pension provider, and the taxpayer’s lawyer led to an application for pension protection being missed and not corrected for seven years.

15th Oct 2021
Tax writer
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Donald Ketley thought that his advisers had applied for his pension protection by 5 April 2009, but it turned out they had not. By the time he found out, he was only eligible for a reduced form of protection, which would cost him an estimated £1m of additional tax.

His late application for full protection in December 2016, asserting that he had a reasonable excuse for missing the 2009 deadline, was rejected by HMRC, and the first-tier tribunal (TC07647) rejected his appeal.

He was granted limited leave to appeal to the Upper Tribunal (UT/2020/000351).

The law

When the pension legislation changed on 6 April 2006 (A-Day), new lifetime allowance charges were introduced to take effect when pension rights valued in excess of £1.5m were crystallised. FA 2004 Sch 36 offered primary and enhanced protections which would exempt taxpayers from these charges provided the protections were claimed no later than 5 April 2009.

Where did the form go?

Ketley qualified to apply for these protections, as at A-Day, his pension rights were worth £5.2m, and had since grown to around £8m. Ketley asked his adviser to send the appropriate form (APSS200) to HMRC. The adviser had completed the APSS200 in 2006 and passed it to AEGON (the pension provider) to insert valuations and send on to HMRC.

HMRC did not issue a certificate confirming the protections – something it was obligated to do upon receiving a valid APSS200 – but this omission raised no red flags with either Ketley or his advisers at the time.

In 2015, a newly-appointed adviser wrote to HMRC querying why no certificate had been issued, and was told no form APSS200 had been received. Somewhere in the pipeline the form had vanished.

In January 2016 Ketley contacted a lawyer (Abrol) and instructed him to investigate what had happened and advise on the prospects of bringing a professional negligence claim. Abrol was not instructed to consider how to remedy the position with HMRC.

At this point Ketley still did not know that he could submit a late notification.

In April 2016, Abrol became aware of the possibility of a late notification. In August 2016 Abrol wrote to HMRC requesting the discretionary acceptance of a late application (he sent the actual form APSS200 on 1 December 2016).

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Replies (9)

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By Paul Crowley
15th Oct 2021 13:16

Sounds like the focus on claiming against the prior advisors took priority over fixing the problem.
Best to look to fix the problem first.

Thanks (7)
Replying to Paul Crowley:
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By sammerchant
18th Oct 2021 10:44

Yes! Always mitigation before litigation.

Thanks (2)
Replying to sammerchant:
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By Paul Crowley
18th Oct 2021 10:54

Nicely put
Usable as a soundbite next time I get a client complaining about prior accountant.

Thanks (0)
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By Hugo Fair
15th Oct 2021 13:21

What isn't clear (to be fair it's not part of the purpose of the article which is about the UT appeal) is:
* What if anything was uncovered by the Abrol investigations?
* In particular were there are any conclusions with regard to where in the chain the form went missing?
* And whether there were grounds for a professional negligence claim?

There were 3 bodies (adviser, AEGON and HMRC) who in one way or another were making money out of the claimant - all of whom could have been more pro-active and at least one of whom should have been.
And in terms of the Appeal, it sounds like the 4th body (Abrol) should have at least notified the claimant of a fast-disappearing option to sort it out with HMRC ... so another win for the professionals!

Basically, were any of these other bodies penalised? And if not why not?

Thanks (2)
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By Justin Bryant
15th Oct 2021 14:53

It should be patently obvious that a claimant in a PI claim is obliged to mitigate their losses if possible, so it seems that someone messed up big time here in not seeking to at least try (promptly) fix things with HMRC.

Thanks (2)
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By bobsto12
18th Oct 2021 10:33

What a foul up. Don't know about this case but organizations that insist on sending vital documents by ordinary post drive me nuts.

Thanks (1)
Replying to bobsto12:
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By Paul Crowley
19th Oct 2021 12:13

Banks seem to choose paper over Email all the time

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By Ian McTernan CTA
18th Oct 2021 11:08

So a delay of almost a year by a client is completely unacceptable.

It's a shame HMRC don't operate that rule too- seeing as some claims are taking much longer than that to resolve...

Thanks (3)
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By AndrewV12
24th Nov 2021 11:25

'Ketley qualified to apply for these protections, as at A-Day, his pension rights were worth £5.2m, and had since grown to around £8m'

There are some fair old amounts flying around here. Where did all that money come from.

Thanks (0)