Dalriada Trustees’ appeals against tax charges levied by HMRC for members of Ark Pension Schemes were unsuccessful in a tax tribunal, resulting in “significant tax consequences for both the members personally and the schemes themselves”, the trustee firm stated.

In its letter informing members of the Ark Pension Schemes (Cranborne Star Pension Scheme, Grosvenor Parade Pension Scheme, Tallton Place Pension Scheme, The Lancaster Pension Scheme, The Portman Pension Scheme and Woodcroft House Pension Scheme) Dalriada highlighted that the tribunal’s decision centred on the application of the law as it stands and “the judge recognised that, in applying the law, this resulted in unfavourable (and, in some cases, unfair) outcomes for members”.

The High Court previously determined that the payments by the Ark Schemes to individuals constituted unauthorised payments under the Finance Act 2004. As such members, and the schemes themselves (by way of Scheme Sanction Charges – ‘SSCs’), were liable for tax charges. However, HMRC and Dalriada did not agree on how the tax charges should be calculated.

HMRC argued that a tax charge arose on a payment of the Maximising Pension Value Arrangement (MPVA) loans ‘to or in respect of’ a member.

It was HMRC’s view that an MPVA loan was a payment made ‘in respect of’ a member that would result in a ‘reciprocal’ loan back from another Ark scheme. Therefore, members would be taxed on the loan they had ‘made’ to a member of another Ark scheme.

For HMRC’s view to be correct, the tribunal needed to conclude that member-to-member matching was intended by the schemes.

In contrast, Dalriada argued that that it was never the intention of the people who set up the Ark Schemes that there was member-to-member matching and that the correct approach to taxing the MPVA loans was as determined in the earlier High Court proceedings, essentially in the same way as if they had received an employment-related loan.

Dalriada’s proposed approach would have resulted in significantly less tax than under HMRC’s approach, its letter stated.

Dalriada’s and member’s appeals against the tax charges levied by HMRC were heard in a tax tribunal hearing which took place in December 2022.

The tribunal’s decision was that that member-to-member matching was intended and therefore accepted HMRC’s proposed approach that tax charges apply to payments made ‘in respect of’ members. As such, members would be taxed on the amount of MPVA loan the member (or members) they were matched with received.

However, the tribunal decided that if a person making an MPVA loan was not a member of the lending Ark scheme when the MPVA was paid, then that person could not have received an unauthorised member payment and will not be subject to a tax charge.

The tribunal also decided that, because a member is seen to have received an unauthorised payment equivalent to the amount of MPVA loan (or loans) made from their scheme to a person (or persons) they are ‘matched with’, it is irrelevant that that member may not have transferred in enough money to fund the MPVA loans he or she has ‘made’.

According to Dalriada’s letter, the tribunal acknowledged that this may result in “some very unfair situations”.

The tribunal has left it to HMRC and Dalriada to attempt to agree the amount of unauthorised payments attributable to each member matched with the recipient of an MPVA loan.

The tribunal also concluded that it was also possible for tax to arise in accordance with Dalriada’s proposed approach, so on the payment a member received, resulting in members potentially being taxed twice.

“This conclusion was against the position of Dalriada, the test members and even HMRC,” Dalriada said.

Dalriada had also made a ‘Good Faith Discharge’ application against the SSCs. The first part of this application considered whether the scheme administrator at the time the unauthorised payments (the MPVA loans) were made reasonably believed that the unauthorised payment was not a payment subject to a SSC.

However, the tribunal concluded that, technically, there was no scheme administrator in place at the time the MPVA loans were paid. As such, it rejected Dalriada’s good faith discharge application and concluded that the SSCs remain payable and will be met from scheme assets.

In a letter to members of the scheme, Dalriada Trustees stated: “Clearly the decision is both incredibly disappointing and frustrating for the members and Dalriada.

"We considered that the approach to taxation that we argued for in the tribunal was both correct and resulted in a fair and reasonable outcome for members and the schemes. Unfortunately, the tribunal disagreed.

"Dalriada and its advisers will carefully consider the full detail of the decision before deciding whether or not there are any merits in an appeal against the tribunal’s decision.

“Dalriada fully appreciates the impact this will have on members, having already suffered years of uncertainty in their financial affairs.

"We understand that members of the Ark schemes were not looking at ways of avoiding tax, rather they were told by the perpetrators of the Ark schemes that they could access funds in a completely legal manner and, were not made aware of the risk of substantial tax charges that would arise in doing so.

“Leaving aside the merits or otherwise of any appeal, Dalriada will continue to work with others in the wider pensions industry in considering what alternative means of redress might be available to members.”

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