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Tax penalties and good faith pension scheme transfers

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The appeal to the First-tier Tribunal, in McCormack and others v HMRC [2018] UKFTT 0200 (TC), involved three appellants who, along with a number of other individuals, had transferred funds from their respective pension schemes registered under FA 2004 s 153 to another registered pension scheme, the Salmon Enterprise Pension Scheme (SEPS). These funds were then paid out of the SEPS account to the accounts of various companies under the control of the scheme promoters which then made payments, in what is accepted to be pension liberation arrangements, to those who had transferred their pensions to the SEPS.

HMRC had deemed these payments not to be authorised payments as defined in FA 2004 s 164, and had therefore raised both an unauthorised payments charge (40%) under FA 2004 s 208 and, in the case of two of the appellants, an unauthorised payments surcharge (15%) under FA 2004 s 209 (25% or more of the fund is withdrawn over 12 months).

The appellants claimed they had not been made aware of the tax consequences of the transactions and it would not be just and reasonable to impose tax penalties upon them, and appealed under FA 2004 s 269. The appeals are informal ‘lead cases’ for the appeals of a number of other taxpayers who have been assessed to unauthorised payments charges and surcharges as a result of their participation in the SEPS arrangements.

The appeals were rejected by Judge John Brooks on the basis that the unauthorised payments charge and surcharge were not penalties to be imposed for taxpayer negligence or dishonesty, but merely a device for HMRC to recoup the tax relief and tax-exempt growth granted to registered pension schemes, when unauthorised payments were made to members of a registered scheme.

Whilst the appellants may have acted in good faith and in ignorance, and may have relied on advice which did not make these tax charges clear, this was no reason to deny HMRC recovery of the charges and surcharges to the pension funds.

The case highlights the fact that UK taxpayers who transfer their UK registered pensions to other registered schemes and receive payments from them which are not authorised can expect HMRC to pursue them for unauthorised payments charges and surcharges to recoup the tax relief given on their schemes. This will apply if they were seeking to ‘liberate’ their pensions or were simply unaware of the rules surrounding payments from UK registered pension schemes.

Practitioners should note that intricate pension liberation schemes do not work as tax avoidance vehicles. Taxpayers, meanwhile, should be aware that ignorance of the rules surrounding payments from registered pension schemes or reliance on advice is unlikely to be a defence against the imposition of recovery charges by HMRC. They should also be wary if they receive an offer promising extremely high investment returns, and of schemes which claim that they can access their pensions before the age of 55 (except in cases of terminal illness). 

Martin Lavender, Tolley (

Issue: 1403
Categories: In brief