The Court of Justice of the European Union (CJEU) ruled last month that defined benefit (DB) pension schemes are not exempt from payment of value-added tax (VAT).
The landmark ruling upheld HM Revenue and Customs’ (HMRC) case in a legal battle with the National Association of Pension Funds (NAPF) and Wheels Common Investment Fund (WCIF).
Jack Wheeler, an associate in Clyde and Co’s pension division, said: “People will be disappointed. They have been protected from tax going back to the 1920s, so this seems to cross that. There will be questions as to whether this is in line with the tax regime in other respects.”
When the action was initiated in 2008, the EU court said investment trusts were special investment funds and should be exempt from VAT on investment management services. The CJEU’s judgment means UK pension schemes will continue to pay about £100 million a year in VAT.
Wheeler said: “The other question is whether defined contribution (DC) plans are affected. DC schemes and personal pensions are arguably not in the scope of the ruling, but we couldn’t say that, at a later date, DC schemes wouldn’t be included.”
Keith Wallace, a consultant at Reed Smith and committee member of the Association of Pension Lawyers, added: “It is very helpful for people in DC schemes as more people move over.”