High Court judgment deals blow to pensions
Revenue's #13m victory over BT and Post Office sets landmark. Chris Quick reports
Revenue's #13m victory over BT and Post Office sets landmark. Chris Quick reports
Pension schemes suffered a severe blow last week as the High Court handed down a landmark judgment against British Telecom and the Post Office which could see schemes forced to pay tens of millions of pounds in extra tax.
The ruling, hailed as a major victory for the Inland Revenue, landed two of the UK’s largest pension schemes with an immediate #13m tax hit, and leaves other schemes open to similar exposure. Experts said it marked a further attack by the Revenue on the historically tax-free pensions industry.
Already set to suffer a #5bn hit from the chancellor’s removal of their ability to reclaim advance corporation tax last year, funds face further Revenue scrutiny for recent share buy-back activity.
The High Court case involved commission income earned by the BT and Post Office pension funds on the sub-underwriting of share issues. Mr Justice Lightman ruled the activity, through which pension funds earn commission by undertaking to buy unsold shares in rights issues, was characteristic of trading and therefore taxable.
Now facing a combined #13m tax bill going back to 1983, the schemes’ trustees are considering taking the case to the appeal court. Other large pension funds, most of which undertake sub-underwriting activity, also face large tax bills if the decision stands.
David Gould, manager of investment services at the National Association of Pension Funds, said the case marked the latest example of the Treasury and Revenue sniping at traditional tax privileges of pensions: ‘This case is clearly a blow to the pension fund movement.’
Alastair Ross Goobey, chief executive of Hermes Pensions Management, which manages the two schemes, confirmed an appeal was being considered.
He added: ‘We are disappointed the High Court has allowed the Revenue appeal against what we considered to be a proper decision by the special commissioners that the schemes’ sub-underwriting activity does not constitute a trade.’
The Post Office said it was giving a cast-iron guarantee that its pensioners would not suffer.