‘HMRC is fining me £190k for abusing millionaire pension rules'

Telegraph

04-04-2025

Has a company treated you unfairly? Our Consumer Champion is available to help. For how to contact her click here.
Dear Katie,
I retired from my role as a financial adviser in 2016, handing over all my clients to someone else. It was an incredibly busy year, and I was very much focussed on visiting them all at home to ensure they were looked after.
Nine years on, after I took some tax-free cash from my pension in October last year, I received a letter from HMRC. It was called a Section 36 request, and it asked me to provide more information about what I had done with my pension.
The letter claimed that back in 2016, I had put into place a newly introduced form of pension protection called fixed protection, which was designed for people with pensions who were near or over the pensions lifetime limit, which had just been reduced to £1m.
Once this protection is in place, your fund can grow to above the threshold without you paying penal tax, however, you lose it as soon as you contribute any more into your pension. If you apply for the protection and continue making pension contributions, you lose the protection, and if you haven't told HMRC, you could incur fines for trying to cheat the system.
HMRC says I applied for this protection and then lost it days later when I made a regular pension contribution. However. I can't have lost it, because I never applied for it in the first place. This is because my pension has never been big enough to worry about the lifetime limit.
I have absolutely no idea why the application is on HMRC's records. Since I retired in 2016, I've continued paying into my pension every month, as I'm still receiving at least £7,000 a year in commission from my former financial advice clients. HMRC wants me to declare when I lost the fixed protection, but since I never arranged to have it, I cannot give it an answer.
Therefore, HMRC seems to be accusing me of abusing its rules to protect my large pension fund from paying too much tax. As a professional adviser in full awareness of the pension contribution rules, this accusation seems totally illogical.
I've also been told to admit that it was me who applied for the protection, which I refuse to do. I understand the fine I could be looking at for losing my fixed protection all those years ago but not telling HMRC is £60-a-day. This would amount to around £190,000.
This is a devastating amount of money for a mistake which I never made, and I am not prepared to pay it. By phone I was told that this is not the first person this has happened to, but in writing I have been told that HMRC's own computers cannot be wrong. The only other option is that someone has logged into my account and done this to try to sabotage me.
I refer you to the scandal that has engulfed the Post Office and the sub-postmasters over their use of the Horizon accounting system. If it is true that HMRC has even a few situations such as this, then perhaps it is necessary for HMRC's website and internal computer systems to be forensically investigated.
– Anon
Dear Anon,
Since receiving this letter, you've been in a difficult back and forth with HMRC, yet the issue has remained unresolved. This has understandably caused you a huge amount of stress. It is adamant that you did apply for fixed protection in August 2016 not once, but twice, even though you firmly deny this.
HMRC said the first application failed, and a second one was filed that same day, which was accepted. When I asked HMRC how it could be sure it was you who actively applied for the protection, it said the person who did it logged in via your own 'government gateway' account. This means that whoever it was must have either hacked in, or known your passwords and all your details.
You have raised the possibility of someone having done this to deliberately sabotage you, however, you could not think who it might be. I also note that the person who logged in did not attempt to withdraw any money or tamper with your finances in any other way, which they could have done. And nor have you had any other suspicious activity on your account since, which makes me highly doubt this theory.
You also wonder whether you could have been a victim within a scandal similar to the Post Office/Horizon incident, since you claim that someone from HMRC intimated to you verbally that yours was not an isolated case.
However, when I asked HMRC, it could not have been clearer that this was not a wider issue. As I said to you, if it is a wider issue, we'll soon know once this piece is published. Other victims, if they exist, will have the chance to come forward. I'll be all ears if they do.
It also occurred to me that HMRC might have mixed up your records with someone of the same name, as I've seen this before. But as it turns out, your name is unique, with you being the only one in the UK.
All this aside, the main issue was whether you were going to have to pay this massive £190,000 fine or not, and when I asked HMRC about this aspect of your case, it came through with some good news.
As it turns out, you have misinterpreted what the £60-a-day 'schedule 36' penalties are, and when they apply. In fact, they are only charged where a customer fails to provide the information that HMRC has requested in an information notice.
And since you did provide the information upon receiving the letter, the penalty would not be applicable. And since your pension was never over the £1m (now £1.25m) lifetime limit, you will not be paying any penal tax either.
Following my involvement, HMRC has removed fixed protection 2016 from your records to avoid any further confusion.
You're incredibly relieved at this outcome, which you feel you would not have been able to achieve without my involvement. I note that you've got a lot on your plate at the moment as you're the main carer for your wife, who has advanced dementia. This can't be easy for you, so I've been very happy to assist you over this matter.
However, once all was said and done and you'd relaxed about the fine, I felt I had to ask: were you 100pc sure it wasn't you who applied for fixed protection back in 2016 in the hope that your pension might reach £1m?
After all, the rules had only just come in, and you were admittedly running around the country tending to clients. It occurred to me that you might have done this rashly and then forgotten about it? However, you replied that you were '110pc' sure it wasn't you, which of course, I accepted.
I've filed your case on my ever-growing pile of mysteries which may never be solved, but I wish you and your wife all the best.
An HMRC spokesman said: 'We have corrected the customer's records to remove fixed protection 2016. There is no wider issue.'