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Appealing A Pension Tax Charge: Annual Allowance, Unauthorised Payments And More

An unexpected HMRC pension tax charge has landed—an annual allowance charge, an unauthorised payments charge, an old lifetime allowance charge, or refused contribution relief. A plain-English guide: how each charge works, who is assessed, and the real grounds of challenge.

Liam Williams

Liam Williams

— 18 min read
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A letter from HMRC has landed and it says you owe tax on your pension. That comes as a shock, because a pension is supposed to be the tax-efficient thing—the one part of your finances the system is meant to reward, not punish. Yet a tax charge has arrived, often for thousands of pounds, on money you may never have seen as cash.

Take a breath. You are almost certainly one of four kinds of reader. You may be a higher earner or a senior NHS, teaching or civil-service professional hit with an annual allowance charge you never saw coming. You may have a self-invested pension—a SIPP or a SSAS—and be facing an unauthorised payments charge on a loan, a property purchase, or money taken out early. You may have received a charge tied to the old lifetime allowance, or be wondering how the new lump-sum allowances that replaced it apply to you. Or HMRC may simply have refused or clawed back the tax relief on contributions you paid in.

Here is the honest picture. Each of these charges has real grounds of challenge, and some appeals genuinely succeed—including for unrepresented appellants. But there is one argument the tribunal cannot help you with: "I didn't understand how this charge worked, and it isn't fair." The First-tier Tribunal applies the law as written; it has no power to waive a charge because it feels harsh. The job of this guide is to show you where the real fights are—and where they are not.

The Self-Contained World Of Part 4 FA 2004

Almost every pension tax charge you can face lives in one place: Part 4 of the Finance Act 2004. Think of it as a self-contained world, with its own charges, its own thresholds, and—crucially—its own rules about who is assessed. That last point trips people up more than any other.

Some charges fall on you, the individual. The annual allowance charge, and the unauthorised payments charge and surcharge, are charged to you personally and normally collected through your Self Assessment tax return.

One charge falls on the scheme administrator—the person or company legally responsible for running your pension scheme. The "scheme sanction charge" is theirs, not yours. The same event can trigger a charge on you and a separate charge on the administrator: two different taxpayers, two different appeals.

And there is a useful mechanism that sits between the two. "Scheme pays" lets you require your pension scheme to settle an annual allowance charge for you out of your pension pot, instead of you finding the cash yourself. We come to it below.

Keep that map in mind—individual charges, the administrator's charge, and scheme pays—because the first question in any pension dispute is "who is HMRC actually assessing, and is that the right person?" Sometimes it is not, and that alone can decide an appeal.

A few terms, in plain English, before we start. A defined-benefit ("final salary") pension promises you an income based on your salary and service—common in the NHS, teaching and the civil service. A money-purchase ("defined contribution") pension is a pot of money you and your employer build up and invest. A SIPP (self-invested personal pension) and a SSAS (small self-administered scheme, usually for a company's directors) are money-purchase schemes that let you choose the investments yourself—which is exactly why they generate unauthorised-payment disputes.

Scenario A—The Annual Allowance Charge (The Surprise Charge)

The annual allowance is a cap on how much can go into your pensions each year with tax relief. Exceed it, and you face an annual allowance charge—income tax that effectively claws back the relief on the excess, charged at your marginal rate (the highest rate of income tax you pay) (s.227 FA 2004). The charge falls on you, and you normally have to work it out and report it on your Self Assessment return; if you leave it off, HMRC can raise it later by enquiry or by a discovery assessment.

This is the charge that blindsides people, because the amount that counts—your "pension input"—is often far larger than the cash you actually paid in, and the allowance itself shrinks for some taxpayers without their realising.

The Standard Allowance—And The First Date To Get Right

The standard annual allowance is £60,000 (s.228 FA 2004). But note the date: it was only £60,000 from 2023-24 onwards. For the years 2014-15 to 2022-23 it was £40,000. If HMRC is assessing an earlier year, the lower figure applies—so the very first thing to pin down is which tax year the charge is for, because the threshold moved.

The Tapered Annual Allowance—The High-Earner Trap

If you are a high earner, your allowance may be far lower than £60,000. The tapered annual allowance (s.228ZA FA 2004) cuts the allowance for individuals with high income. It only bites if your "threshold income" exceeds £200,000; once your "adjusted income" (broadly, your income plus the value of your pension savings) exceeds £260,000, the allowance falls by £1 for every £2 of the excess—down to a floor of £10,000. HMRC sets out the rate and the formula in plain words at PTM057100. As a quick illustration: adjusted income of £300,000 is £40,000 over the £260,000 limit; halved, that cuts your £60,000 allowance by £20,000, to £40,000.

The dates matter again. The £260,000 adjusted-income figure and the £10,000 floor have only applied since 2023-24. For 2020-21 to 2022-23 the adjusted-income figure was £240,000 and the floor was £4,000. So a reader appealing a charge for one of those earlier years is working with a tighter taper and a lower floor.

The Money Purchase Annual Allowance—Once You Touch The Pot

If you have flexibly accessed a money-purchase pension—for example by drawing more than your tax-free cash, or taking a lump sum from the taxable part—a separate, lower cap clicks in for your future money-purchase savings: the money purchase annual allowance (MPAA) of £10,000 (s.227ZA FA 2004). Once triggered it applies for that year and every year after. Many people trip the MPAA without realising that taking money out early would shrink the amount they could later pay back in.

The date trap is sharp here too. The MPAA is £10,000 from 2023-24 onwards, but it was only £4,000 for the years 2017-18 to 2022-23. HMRC explains the MPAA, and the £30,000 "alternative" allowance that then applies to any defined-benefit savings, at PTM056500.

The Defined-Benefit Input Spike—Why NHS And Teachers Get Caught

This is the cruellest version of the charge, because it can arrive with no extra cash in your hands at all. In a defined-benefit scheme, your "pension input" for the year is not what you paid in—it is the growth in the value of your promised pension over the year, measured as the closing value minus the opening value (s.234 FA 2004).

To turn a promised annual pension into a capital value, the calculation multiplies it by a factor—broadly 16 times the increase in your annual pension (plus any separate lump sum). That multiplier sits inside the statutory valuation formula; HMRC works through the mechanism at PTM053301. The practical effect is that a modest-looking pay rise or an extra year of service can produce a large notional "input"—and an annual allowance charge—even though you never received the money. This is why NHS consultants, teachers and senior civil servants are the classic annual-allowance appellants.

A rough sense of scale: an extra £1,000 of promised annual pension, multiplied by the factor of roughly 16, is a £16,000 input—on which a higher-rate taxpayer could face a charge of several thousand pounds, with no cash received. The figures the whole dispute turns on come from your scheme, not from HMRC: your scheme administrator must automatically send you a pension savings statement if your input to that scheme exceeds the annual allowance (and you can ask for one otherwise). And if a charge genuinely is due, you usually will not have to find it from your own pocket—scheme pays, below, lets the pension itself foot the bill.

Carry-Forward—Check This First

Before you accept any annual allowance charge, check carry-forward. Unused annual allowance from the previous 3 tax years can be carried forward and added to the current year's allowance (s.228A FA 2004). If you did not use your full allowance in recent years, that spare capacity can soak up this year's excess and erase the charge entirely. A charge calculated as if you had no carry-forward—because HMRC, or whoever prepared your return, did not pick up your earlier-year headroom—is one of the most common reasons an apparent charge turns out to be wrong. Carry-forward is usually the first fix.

Scheme Pays—Making The Pension Foot The Bill

If a charge genuinely is due, you may not have to pay it from your own pocket. "Scheme pays" (s.237B FA 2004) lets you require your scheme to pay the annual allowance charge for you, in exchange for a reduction in your benefits. It is mandatory—the scheme must do it if you ask in time—where the charge for the year exceeds £2,000 and your input into that particular scheme exceeded the standard annual allowance. The notice deadline for mandatory scheme pays is 31 July in the year after the tax year. A "voluntary" scheme-pays arrangement, where the scheme agrees even though those conditions are not met, has an earlier practical deadline of 31 January and leaves the legal liability with you. You make the election to your scheme administrator, not to HMRC—ask them for the scheme-pays form. HMRC sets out both at PTM056400.

The Live Grounds On An Annual Allowance Charge

Put together, the real arguments on an annual allowance charge are factual and technical, not "it's unfair":

  • Carry-forward was not applied, or not applied in full.
  • The pension input figure is wrong—the scheme's valuation, or the opening/closing values, were miscalculated.
  • The taper was miscalculated—your threshold or adjusted income was overstated (salary-sacrifice add-backs and the treatment of employer contributions are common error points).
  • The wrong year's threshold was used—£40,000 instead of £60,000, or the wrong taper figures for the year.

Honest note: there is little tribunal case law on the annual allowance charge aimed at unrepresented appellants, because it is usually self-assessed and most disputes are resolved with HMRC by getting the figures right. The strength of your case here is in the numbers and the legislation, not in citing decided cases.

Scenario B—Unauthorised Payments (The Liberation, SIPP-Loan And Taxable-Property Trap)

This is the family of charges where most of the decided case law sits—and where the bills are largest. An unauthorised payment is, broadly, money or value taken out of a registered pension scheme in a way the rules do not permit. The classic examples are a loan back to the member from their own pension, a SIPP or SSAS buying the wrong kind of asset, or money taken out before you are allowed to access it.

The numbers are severe. The unauthorised payments charge is 40% of the payment, charged on the member or recipient (s.208 FA 2004). On top of that, an unauthorised payments surcharge of 15% (s.209 FA 2004) applies once the unauthorised payments reach 25% of the pension fund—the "surcharge threshold" (s.210 FA 2004). Charge plus surcharge can therefore reach up to 55% of the amount involved. On a £20,000 unauthorised payment, for instance, that is an £8,000 charge and, once the surcharge applies, a further £3,000—£11,000 in all. These charges fall on you.

The Scheme Sanction Charge—On The Administrator, Not You

The same unauthorised payment can also trigger a scheme sanction charge on the scheme administrator (s.239 FA 2004)—the clearest illustration of the who-is-assessed split. If your dispute is really about the administrator's charge, the administrator (not you) is the appellant, and the administrator has its own defences. Conversely, if HMRC has assessed you for something that was properly the administrator's liability—or vice versa—who has been assessed becomes a live ground in its own right.

Taxable Property—The SIPP/SSAS Asset Trap

If your SIPP or SSAS acquires the wrong kind of asset, the law treats the scheme as having made an unauthorised payment to you—so the 40%/15% charges and the scheme sanction charge follow. The wrong kind of asset is "taxable property": broadly, residential property and tangible moveable assets (think art, classic cars, fine wine), defined in Schedule 29A FA 2004. A SIPP buying a flat directly, or a connected-party arrangement, is the textbook trap.

Early Access—Before The Minimum Pension Age

You generally cannot take money from a pension before the normal minimum pension age, which is 55, rising to 57 from 6 April 2028 (s.10 Finance Act 2022). Taking benefits earlier than that—other than on genuine ill-health or protected-age grounds—is an unauthorised payment. This is the heart of "pension liberation" cases, where a member is persuaded by a scam to move their pension and is then handed a "loan" back from it. The age limit is itself date-sensitive: it rises from 55 to 57 on 6 April 2028, so for events from that date the boundary moves.

If You Have Been The Victim Of A Scam

If you moved your pension on bad advice and were handed a "loan" back, you may be both out of pocket and now facing a tax charge—which can feel like being punished twice. Two things are worth holding onto. First, this is a civil tax charge, not a criminal matter: you are not being prosecuted for having been deceived. Second, the routes below are real ones for victims—the "just and reasonable" discharge, and the discovery-assessment challenge that won Curtis—not theoretical comfort.

Treat the tax charge and the scam as two separate problems. Report the scam itself to Action Fraud (actionfraud.police.uk), and check whether the firm was authorised using the FCA's ScamSmart tool (fca.org.uk/scamsmart); free, impartial guidance on the pension side is available from MoneyHelper (moneyhelper.org.uk). Putting the scam on record can also support your case that you acted reasonably and were not careless.

The Live Grounds On An Unauthorised Payment

There are three arguments that do real work here:

It was not "just and reasonable" for you to be liable. The tribunal has a power to discharge the charge or surcharge where it would not be "just and reasonable" for the person to bear it (the discharge provisions, ss.267-268 FA 2004). You do not have to prove dishonesty or negligence by HMRC; the question is whether, on the facts, it is fair to hold you liable.

The discovery assessment is invalid or out of time. Where HMRC raises the charge by a discovery assessment under s.29 TMA rather than through an open enquiry, that assessment has its own validity hurdles and time limits—and HMRC carries the burden of proving they are met. This is often the most powerful line of attack, as the cases below show.

The wrong person was assessed—member versus scheme administrator, as above.

The Cases

Three decisions map the landscape:

  • Curtis v HMRC [2022] UKFTT 172 (TC) is the standout sympathetic case. Mrs Curtis, a scam victim, transferred her pension to a liberation scheme and received a "loan" funded from her own transferred fund. The tribunal held the loan was an unauthorised payment—but it knocked out the discovery assessment, because she had not been careless: she had taken what she reasonably believed was independent advice. With the discovery gateway not met, her appeal was allowed. It is the perfect intersection of pensions, discovery and the unrepresented appellant—and a reminder that losing the "was it an unauthorised payment?" point is not the end if the assessment itself is defective. Our guide to discovery assessments explains the gateway conditions.

  • Foulkes v HMRC [2024] UKFTT 322 (TC) shows a realistic partial win. Mr Foulkes, appearing in person, faced a charge and surcharge on a pension-derived loan; the tribunal allowed his appeal in part and reduced both the charge and the surcharge. An unrepresented appellant moved the number.

  • Trachtenberg v HMRC [2025] UKUT 206 (TCC) is the discovery anchor. The Upper Tribunal—a higher court whose decisions bind the First-tier Tribunal—confirmed that s.29 TMA does reach unauthorised-payment charges. The practical message is double-edged: the discovery machinery applies, so the Curtis-style challenge is squarely available, but so are HMRC's discovery time limits and powers. (One technical note for anyone reading the decision: its headnote mistypes the statute as "Finance Act 1994"—the correct Act is the Finance Act 2004.)

Scenario C—The Lifetime Allowance, Then And Now

If your charge touches the lifetime allowance, the first thing to settle is when the underlying event happened—because the rules changed, and an old charge and a new one are tested in genuinely different ways. For years, a separate cap—the lifetime allowance (LTA)—limited the total value you could build up across all your pensions before a charge applied. It has now gone, but in two stages, and which stage your charge falls into changes everything. Read this part carefully.

The cut-over, stated plainly:

  • The lifetime allowance charge was removed from 6 April 2023. So for the 2023-24 year there was no LTA charge, even on benefits over the old cap.
  • The lifetime allowance was then abolished entirely from 6 April 2024 by Schedule 9 to the Finance Act 2024.

If your charge relates to a pension event (a "benefit crystallisation") before 6 April 2024, you are in the old LTA regime, and the old rules and time limits govern your appeal. If your event is now, the LTA no longer exists.

In its place, from 6 April 2024, are two new allowances that test only your tax-free lump sums—not the total value of your fund:

  • The lump sum allowance (LSA) of £268,275 caps the tax-free lump sums you can take in your lifetime.
  • The lump sum and death benefit allowance (LSDBA) of £1,073,100 caps the tax-free lump sums payable across your life and on death.

Both were introduced by FA 2024 Sch 9 (which inserted a new chapter into the income-tax code for lump sums). The key change for an appeal is that going over these allowances no longer produces a flat LTA charge—the excess lump sum is taxed at your marginal rate as pension income instead. People who hold one of the old LTA protections (for example Fixed Protection) keep a higher LSA and LSDBA, and transitional rules adjust the allowances for lump sums already taken before 6 April 2024—so if you hold a protection, check HMRC used your higher protected allowance, not the standard one. HMRC's current guidance is in the PTM170000 series.

The single most important thing here is simply to know which regime your charge sits in. Arguing the new rules against an old-regime charge—or the reverse—wastes the one advantage an unrepresented appellant has: getting the basics exactly right.

Scenario D—Refused Contribution Relief

The fourth scenario is the mirror image of the others: instead of charging you extra, HMRC has refused or clawed back the tax relief on contributions you paid in.

The basic rule is that your contributions only attract relief up to the greater of £3,600 and your relevant UK earnings for the year (s.190 FA 2004). "Relevant UK earnings" broadly means your earned income—employment, self-employment, certain other taxable earnings—not investment income or pension income. So a non-earner or low-earner who pays in more than £3,600 gross will find the excess is not relievable, and HMRC may unwind the relief already given.

How that unwinding happens depends on the scheme's method. Under relief at source, your scheme claims basic-rate relief from HMRC and adds it to your pot, and you claim any higher-rate relief through your return—so an over-claim is recovered from you. Under net pay, your employer deducts the contribution before tax, giving relief automatically through the payroll. We explain the two mechanics, and the appeal points around them, in our guide to employee income appeals.

There is one important case here. In HMRC v Sippchoice Ltd [2020] UKUT 149 (TCC), the Upper Tribunal held that a contribution made in specie—that is, by transferring an asset (shares) to the pension to satisfy a money debt, rather than paying cash—is not a "contribution paid" attracting relief. "Paid," in this context, means money. The decision carries a second lesson worth holding onto: the Upper Tribunal confirmed that HMRC's own Pensions Tax Manual does not have the force of law. The PTM is guidance, not legislation—useful, but not the last word, and a reader leaning on a manual page should know a tribunal can look past it to the statute.

How Disputes Reach The Tribunal—The Appeal Route

For the charges that fall on you—the annual allowance charge, the unauthorised payments charge and surcharge, an excess-lump-sum charge, or a refusal of relief—the route to the tribunal is the standard direct-tax one.

The charge usually surfaces in one of two ways. Either HMRC opens an enquiry into your Self Assessment return under s.9A TMA and closes it with a decision (see our guide to HMRC enquiries and closure notices), or—where the charge was never on your return—HMRC raises a discovery assessment under s.29 TMA.

Once you have an appealable decision, the mechanics are these:

Who has to prove what. On the amount of an assessment, the burden is on you to show it is wrong (s.50(6) TMA)—so your figures and evidence do the heavy lifting. But on the validity and time limits of a discovery assessment, the burden is on HMRC; and on any penalty, HMRC must establish the behaviour, and you may have a reasonable excuse defence to the penalty (though not to the tax itself). If HMRC alleges deliberate behaviour to reach back further—up to 20 years—what "deliberate" means is set by Tooth v HMRC.

The limit on what the tribunal can do. The First-tier Tribunal is a creature of statute. It cannot waive a charge because the rules are complex, because no one warned you about the taper, or because the outcome feels unfair. "I didn't understand it" and "it isn't fair" are not grounds the tribunal can act on—the limit our analysis of Hok v HMRC explains. The arguable grounds are the concrete ones set out above: wrong figures, carry-forward not applied, the taper miscalculated, the payment not in fact unauthorised, "not just and reasonable," the wrong person assessed, or a discovery that is invalid or out of time.

Interest, and paying in the meantime. Late-payment interest runs on a back-dated charge from the date it was originally due—currently 7.75%—and keeps running while you appeal, so across several years it adds up; there is no separate appeal against interest itself (see interest on unpaid tax). You can apply to postpone payment of the disputed tax while the appeal is live (postponing payment during appeal), which stops you having to find the money before the dispute is resolved. And if a charge is genuinely due but you cannot afford it, you can ask HMRC for a Time to Pay arrangement to spread it—a separate matter from any appeal.

What To Do Now

  1. Identify which charge—and which year. Annual allowance charge, unauthorised payment, an old lifetime-allowance charge or a new lump-sum-allowance charge, or refused relief? And for which tax year? The thresholds moved (the annual allowance, the MPAA and the taper all changed from 2023-24; the lifetime allowance went in 2023-24 and 2024), so the year decides the numbers.
  2. For an annual allowance charge, check carry-forward first. Unused allowance from the previous 3 tax years can wipe out the charge. Then check whether scheme pays applies, so the bill comes from the pension rather than your pocket.
  3. Get the input figures from your scheme administrator. For a defined-benefit charge especially, the whole dispute can turn on the opening and closing values the scheme used. Ask for your pension savings statement—your scheme must send one automatically if your input exceeded the annual allowance, and otherwise on request.
  4. For an unauthorised payment, weigh the two best grounds. Whether it would be "just and reasonable" for you to be liable (the discharge power), and whether the discovery assessment was valid and in time. The discovery point alone won Curtis.
  5. Mind the 30 days clock. Appeal in writing within 30 days of the decision. If the window has passed, a late appeal is still possible but the tribunal applies a strict test.
  6. Keep the charge and any penalty separate. They are appealed separately and tested differently—the burden on the amount is on you; the burden on a penalty is on HMRC. Do not let one swallow the other.
  7. Get help if you are unsure. Free help is available from TaxAid (taxaid.org.uk) and the Low Incomes Tax Reform Group (litrg.org.uk); a Chartered Tax Adviser or accountant can be engaged for a single piece of work, which is often worthwhile given the sums involved.

For the bigger picture of how any HMRC dispute unfolds, see our tax dispute timeline, and for the foundations of when and how you can challenge HMRC at all, understanding your HMRC appeal rights.

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