RPSM03303021 - Scheme Administrator Pages: Protecting pension rights from tax charges: Benefit payment - enhanced protection: Pre 6/4/09 crystallisation

Benefits crystallising before 6 April 2009 where the individual has not yet received their certificate from HMRC

Individuals have up to 5 April 2009 to notify HMRC of their right to enhanced protection. It may well be that an individual is due to crystallise benefits before they have received their certificate from HMRC. In these circumstances scheme administrators have two choices

• assume enhanced protection does not apply and pay the lifetime allowance charge on any benefits crystallising over the standard lifetime allowance, or
• take the risk of paying benefits without deducting the lifetime allowance charge.

Scheme administrators have until 45 days after the quarter in which the lifetime allowance charge arises to pay the tax to HMRC (see RPSM12301300). Before the tax is due to be paid to HMRC the individual may receive their certificate and so be able to provide the administrator with the relevant details.

If a scheme administrator deducts the lifetime allowance charge and it is later found not to be due the overpaid tax can be reclaimed from HMRC. The scheme administrator must reclaim any overpaid tax. They can then use the repaid tax to pay extra benefits to the member. This can include an extra pension commencement lump sum - as long as it is paid within twelve months of the scheme administrator receiving the refund of the overpaid lifetime allowance charge from HMRC. If the individual has passed their 75th birthday the pension commencement lump sum can still be paid within this twelve month window.

If the scheme administrator chooses not to deduct any lifetime allowance charge on benefits crystallising over the standard lifetime allowance and lifetime allowance charge is later found to be due the scheme administrator is still jointly and severally liable to the tax. The tax liability would have arisen in the quarter that benefits crystallise. Administrators taking this course of action do so in the knowledge that there is a risk that tax is due and consequently they may be liable to tax, interest and penalties . HMRC is unlikely to accept that liability to any tax, interest and penalties should be discharged through the ‘good faith’ provisions.