Dalriada Trustees has lost its appeal against HM Revenue & Customs (HMRC) tax charges on Ark pension schemes.
In a letter to the pension scheme members, Dalriada said that this would result in “significant tax consequences for both the members personally and the schemes themselves”.
The schemes in contention include the Grosvenor Parade Pension Scheme, the Cranborne Star Pension Scheme, the Lancaster Pension Scheme, the Portman Pension Scheme, the Tallton Place Pension Scheme and the Woodcroft House Pension Scheme.
The case focused on the tax outcomes relating to transactions made by the pension schemes, which ran on the basis of a pensions reciprocation plan (PRP).
This was set up to allow members to access their pension before they retired, without setting off an unauthorised payment, that would result in tax charges. The structure applied was an MPVA (maximising pension value arrangement), where the pension saver transferred their pension funds into an Ark scheme and received an MPVA loan from another Ark scheme.
Due to the Pension Regulator’s concerns about the PRP, Dalriada was appointed to act as an independent trustee.
In 2011, the High Court found that payments by the Ark schemes were unauthorised, according to the Finance Act 2004 and therefore members and the schemes were liable for tax charges.
Great hardship
The appeal against the High Court decision was heard in a tax tribunal in December last year, with the outcome published last week.
In his closing statement, the tribunal judge said: “We realise that the outcome of these proceedings will not be at all welcome either to Dalriada or to the members of the Ark Schemes, who have already had to endure great hardship as a result of the regrettable history of this matter.”
Dalriada also said in its letter to scheme members that it appreciated the impact on members who have “already suffered years of uncertainty in their financial affairs”.
Dalriada is now considering whether to appeal the decision. It stated that it would continue to work with others in the pensions industry to look at what alternative means of redress might be available to members.
What happened?
In May 2011, Dalriada Trustees was appointed by The Pensions Regulator to take over the running of a number of schemes marketed by Ark Business Consulting.
TPR took action following concerns that the schemes were being used for pension liberation, where individuals under the age of 55 get access to their retirement pots early by way of a loan or other form of cash inducement.
According to Dalriada, such schemes generally have high charges and often invest whatever money is leftover in risky and esoteric vehicles.
They also put members at risk of having to pay large sums of tax. Taking money out of a pension early can trigger an HM Revenue & Customs tax charge at a rate of up to 55%.
