RPSM11105330 - Technical Pages: Lifetime allowance: Where the lifetime allowance used up: Liability in the member’s lifetime: Discharge of the scheme administrator’s liability

Discharge of the scheme administrator’s liability where they have acted in good faith

[s267][The Registered Pension Schemes (Discharge of Liabilities under Sections 267 and 268 of the Finance Act 2004) Regulations 2005 - SI 2005/3452] 

As the scheme administrator is relying largely on declarations made by the member there will be circumstances where, based on the information to hand, the scheme administrator fails to reduce a member’s rights and payments at a BCE, when in fact a chargeable amount did crystallise at that BCE. Alternatively they do deduct an amount to cover a level of lifetime allowance charge they ascertain as due, but not by an amount sufficient to cover the correct amount due.

This means that the scheme administrator may find themselves jointly liable for a charge but did not retain enough, or any, of the member’s funds/rights within the scheme to meet that liability (because, for example, all the monies were paid out to purchase an annuity).

Where this happens the scheme administrator can apply to HMRC to be discharged from their liability to the charge due by claiming that they acted in ‘good faith’. This application must be in writing, and made within certain deadlines.

RPSM04302010 explains the process of application for discharge of liability and the deadline for application in more detail. This deadline varies, depending on whether the scheme administrator is a company or individual.

What we mean by good faith

A scheme administrator may apply to be discharged from their liability on the grounds of good faith where they reasonably believed that

• there was no liability to the lifetime allowance charge at that BCE, or
• the amount of the lifetime allowance charge arising at that BCE was less than the actual amount due.

If HMRC consider that, in the circumstances of the case, it would not be just and reasonable for the scheme administrator to be liable for the charge due (or part of the charge due), they will discharge the scheme administrator of their liability. The member will then become solely liable to the charge (as the discharge of the scheme administrator’s liability does not alter the member’s own liability).

Scheme administrators should retain documentary evidence of any member statement or information they have relied on.

The good faith protection for the scheme administrator is aimed at the situation where they have been misled or been given incomplete information, by the member (or another party acting for them) leading them to assume wrongly that the member has more unused lifetime allowance than they in fact have.

If the scheme administrator simply believed the member was going to deal with the liability himself, or that one of the other schemes in which the member had benefits was going to settle the liability, the liability will remain that of the scheme administrator until either the member, the scheme administrator or a combination of the two pays the tax due. These circumstances are not ones that the good faith provisions are intended to cover.