This case concerns an attempt by a sole scheme member to have the entire pension fund transferred to him tax-free. He argued that, as sole beneficiary, he was entitled under the rule in Saunders -v- Vautier to wind up the trust and require the entire fund to be delivered to him. The High Court held that he could not do this and required him to pay it all back into the scheme. This was a better outcome for him than the alternative being argued by HMRC: that he pay tax on the full amount on the basis that the scheme had lost approval. Although this case concerns the pre-A day tax regime, the position would be similar under equivalent Finance Act tax charges relating to unauthorised payments and deregistration.
Following the death of his wife, Mr T was the sole member of the scheme, which later became a SSAS. The trustees were Mr T, his daughter and a pensioneer trustee. The employer (of which Mr T was the sole director) had power to remove trustees by deed on four weeks’ notice.
The pensioneer trustee disagreed that the scheme assets could be transferred to Mr T under the rule in Saunders -v- Vautier. Mr T gave notice removing the pensioneer trustee as trustee and directed the transfer of the scheme assets to his personal bank account. HMRC issued him with a tax bill of 40% of the monies withdrawn on the basis that the scheme had lost approval and an alternative income tax bill in relation to the same payment.
The court held that the rule in Saunders -v- Vautier did not apply - the rule can only apply where the beneficiaries together are entitled to the whole of the beneficial interest; but here there was a possibility, however remote, that Mr T might remarry and/or have more children. The removal of the pensioneer trustee was invalid, as it was not effected by deed, nor had the notice period expired. Mr T was acting as a trustee in withdrawing the funds, but in sanctioning an unauthorised payment he was committing a breach of trust. He received the payment with knowledge of his own breach of trust and so held the funds as constructive trustee for the scheme. On this basis, it was held that the property never left the trust - and no tax was payable as long as Mr T returned it to a trustee bank account. The scheme technically remained unapproved and Mr T would have to persuade HMRC to restore approval/registration in order for him to receive tax-free payments from it.