Warning: pension liberation victims face 55% tax charge
People who tried to access their pension pot early during the 2011/12 financial year, and who were duped into thinking they wouldn’t have to pay any tax, will receive a ‘protective assessment letter’ between now and 5 April 2016 demanding up to 55% tax.
If you access your pension early (before 55 years old) you will be subject to an unauthorised payment tax, which is usually 55%, but according to HMRC charges can be as much as 70% of the value of the payments or investments made.
HMRC has four years to claw back the unauthorised payment tax. So those who transferred or liberated their pension pots in 2011/12 are now being targeted.
Campaign group ACA Pension Life, which helps pension liberation scam victims, says this move will deliver “a devastating hammer blow” to tens of thousands of pension scam victims who were conned by liberation scammers who told them they could access their pensions tax free thanks to a legal loophole.
In fact, they handed over their entire lifetime savings and now face mountainous debts plus tax demands which must be paid usually within 30 days if the assessment is not appealed.
The campaign group has seen a spike in the number of people falling victim to pension scammers since the government introduced its pension freedom reforms last April, allowing over 55s to access their entire pension pots.
I’ve been scammed, do I have to pay the tax?
If there’s a question mark over whether there’s tax to pay or how much must be paid, HMRC protects its position by issuing the assessment, i.e tax demand. The taxpayer then has 30 days in which to appeal, and if the protected assessment is not appealed within the 30 days then the tax must be paid.
HMRC says the bottom line is that people can’t access their pension pots early without paying tax and unfortunately, it will have to collect tax owed. A spokesperson adds: “We apply the tax legislation fairly and consistently in line with the rules but try to be as supportive as possible for those who have made a genuine mistake.”
It is possible to negotiate a time-to-pay arrangement with HMRC as few – if any – of the victims have the money to pay the tax, says ACA. Most people who entered into these schemes did so only because they were assured it was 100% legal and there would be no tax to pay as it was a legitimate “loophole”.
ACA says that last year all the appeals it handled were accepted by HMRC, although this was only a temporary measure until the cases are heard by the Tax Tribunals and a judge decides how the liberations should be taxed.
‘It will ruin lives’
Angela Brooks, chairman of ACA said: “This is the horrific fate that awaits many. It will ruin lives.
“It means not only have these victims almost certainly lost their hard-earned retirement savings, now they will owe HMRC a huge amount of tax.
“In addition, most also face other crippling debts and loans.
“To make matters worse, it looks as though HMRC is going to do exactly what they did last year – which is leave it until the absolute last minute to issue these letters.”