Pensions liberation scheme held to be sham
The first tier tribunal recently decided a case that involved, what was described as, a ‘pensions liberation scheme’.
The taxpayer belonged to two authorised personal pension schemes. In 2001, after he was cold called by promoters of the tax avoidance ploy, his accrued pension benefits of around £55,000 were transferred out of these schemes into the Holme Limited Pension Plan (HLPP). This was administered by a company named Holme Limited, which had been set up by a third party.
Individuals who wanted to realise their pension funds before their retirement age were told they could obtain employment with Holme Limited. Once their pension funds were transferred over HLPP bought an annuity which the employee could use as security for an interest-free loan. HMRC argued that the annuity would never be paid to the employee and the loan would never be called in. The operator took 20% commission on the funds, leaving employees with 80% of their pension fund as cash in hand.
The taxpayer argued that the employment was genuine and that he had not participated in the pension arrangements. The Tribunal considered him to be an unreliable witness and the employment contract to be a sham.
The Tribunal found that, as there was no employment contract, there was an unauthorised transfer of funds out of the authorised pension schemes. This resulted in the taxpayer being liable for tax of over £18,000 on the funds concerned together with a 30% penalty for negligently filing an incorrect tax return.