Did you use a ‘pension liberation scheme’ to access your pension cash when you were under 55? If so then you are among thousands who did and are being targeted by HMRC who are requiring the victims of such “pension liberation” scams to repay millions of pounds of tax relief plus penalties.
Letters are being sent by HMRC to those that have broken rules by accessing and taking cash out of their pension ahead of time, HMRC are demanding that they settle the bill. Those who did take part in such schemes can expect to have to repay up to 70% of the amount they withdrew. This is broken down as a 40% charge for the withdrawal and 30% of extra penalties.
From 2010 – 2013 the amount that was taken from their pensions by savers in those three years increased exponentially from £25m to £400m.
Unfortunately, a good number of these schemes were attractive-sounding deals involving alleged tax “loophole” and were often run by fraudsters. The rules on accessing your pension are very clear and you cannot do so under the age of 55 unless the person is in ill health.
Some victims were persuaded by the fraudsters to hand over control of the cash which was then stolen, and the individual left to face a rather large tax bill.
HMRC said it has no power to waive tax charges when someone has been the victim of a pension liberation scam.
Despite the blanket letters HMRC said it will make an effort to help those who have "made a genuine mistake".
Anyone who accessed their pension in the 2011-2012 financial year is likely to receive a demand from HMRC. This period is about to “time-out” which means that HMRC will no longer be able to demand tax for that period once that point has been reached.
Anyone receiving a letter of demand from HMRC have 30 days to appeal, a request to postpone the bill until the appeal has been heard can be made, but anyone doing so also runs the risk of accruing further interest and penalties for the duration of the appeal.
Pensioners were warned not to be seduced by scammers when pension freedoms were introduced, those scammers promised early access to pension pots and no payment of punitive taxes or fines. Even so, many were still drawn to this promise and millions were stolen by these scammers.
Angela Brooks of ACA Pension Life, a campaign group set up to help scam victims, said: “There are tens of thousands of people across the UK and abroad who were told by conmen using sophisticated tactics that they could access their British pensions tax-free thanks to a legal loophole. This is not, and has never been, the case.
“HMRC is imminently to send out its next wave of protective assessment letters to victims with tax demands of a staggering 55 per cent.
“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.”
Help includes organising different payment schedules for those who owe tax which they cannot pay immediately.
A spokesman said: "We are not able to discuss individual cases. 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.
"Tax reliefs are given to support the building up of a pension pot for later in life which is why accessing it early through a so called 'pension liberation scheme' can mean a significant tax charge.
"We aim to deal with all cases as quickly as possible - and anyone with concerns should contact us as soon as they can, so we can support them to rectify any issues."
Comment
In a time of tight financial constraints, it is easy to see the attraction of a lump sum of money without strings attached. Clearly there is no such thing as easy money and as a result, millions of pounds is now owed to HMRC. When something is too good to be true it usually means that it is, therefore always seek good sound financial advice or contact HMRC to ensure that what you are being told is compliant.
