Jeremy Cornford’s tax problems began with what he thought was a sensible decision. In 2011, encouraged by a work colleague and a registered financial adviser, Cornford, then an insurance broker, moved his £96,000 retirement savings pot. He put it into the Portman Pension Scheme, one of a group of vehicles known as the “Ark funds”.
Cornford hoped the new fund — unrelated to the US’s ARK Investment Management — would earn him improved investment returns. He was impressed that a key figure behind the funds was Stephen Ward, a former adviser to the government on pensions legislation. Now himself a financial adviser, Cornford, 57, says he was assured there was no prospect that the scheme would create a tax problem.
But more than a decade after he lost £53,000 invested in the so-called “pension liberation” scheme, Cornford and several thousand others who lost out face new financial devastation.
Many victims of the multiple different schemes, which mostly operated between 2006 and 2014, have received tax bills of as much as tens of thousands of pounds. Others have been warned they could face demands for 55 per cent tax on the whole sum they put into the failed investments — or even more. The total sought is likely to reach at least tens of millions of pounds.
MPs and peers in the All-Party Parliamentary Group on investment fraud in November called for the UK’s HM Revenue & Customs tax authority to change its approach to the issue. They said HMRC was “persecuting victims” of the highly controversial schemes, instead of holding promoters of the schemes to account.
Victims insist organisers of the complex schemes denied the transfers had tax implications. The various schemes typically lent some of the funds to other investors and put the rest into risky, illiquid assets. Among the investments by some schemes were forestry land in Brazil and car parking spots in Dubai. All of the participants who spoke to the FT had lost all they invested, except for any money they received back as loans.
Cornford calls HMRC’s pursuit of him and other scheme participants a “national disgrace”. He has already paid £30,000 tax. But a tax tribunal judgment in March opened the way for HMRC to seek still higher sums — which are still being calculated — from him and other people affected.
In a coffee shop near where he now lives in East Sussex, Cornford says the situation has left him “in limbo” financially.
“You cannot commit to anything because you’re waiting for this bill all the time,” he says.
Another person affected, Sue Flood, from Essex, fears a bill of £126,000 or more after £230,000 was transferred to Ark from her own pension at the BBC and her partner’s private pension.
A letter to participants from Dalriada Trustees, which now manages the funds, has warned them they could be taxed on everything transferred from their original pension funds to Ark — or in some cases even more. They would be charged 40 per cent of the sum deemed subject to tax, plus a 15 per cent penalty surcharge. The Pensions Regulator put Dalriada in charge of the funds in 2011 because of concerns over how they were being run.
On top of the tax charges, Flood, 65, and her partner could face an 8 per cent interest charge for each year since the 2011 transfer. Dalriada is still working with HMRC to establish participants’ liabilities.
Flood, who served as “victim representative” to the APPG inquiry on the issue, is particularly frustrated because she made extensive efforts to check Ark’s probity before signing up. Having developed further concerns, she tried to stop the transfer while it was going through.
“They chose to chase the low-hanging fruit,” Flood says of HMRC. “HMRC is victim-blaming.”
HMRC insists, however, that none of its tax bills represents a tax on savings lost to misconduct. It says it is right to tax unauthorised, early transfers from pension funds.
“We recognise individuals may have lost money as a result of entering liberation arrangements and we are, of course, sympathetic,” it says. “However, we have a duty to tax amounts that individuals release, or attempt to release, from their pensions where this is not authorised in law.”
“Pension liberation” schemes were marketed as a lawful, tax-free way for savers to access some of their pension pot before the age of 55. Some participants took part on the promise of better investment returns.
Successive governments encouraged pension savers to consider making transfers. A relaxation in HMRC’s rules ensured that hundreds of schemes that later failed received formal registration as pension funds with the tax body. Many who lost out say the registration persuaded them of the schemes’ legitimacy. A database that Flood maintains shows that several thousand people participated. At least £100mn in assets was transferred.
Nearly all the various schemes breached normal pension rules. In the Ark funds’ case, the Pensions Regulator transferred management of the schemes to Dalriada in 2011 for a number of reasons, including what it called “irregular” transfers from the funds to a High Street travel agent and an unregistered company in Cyprus.
Ward, who introduced many of the members to the Ark schemes, was barred in 2016 from acting as a pension fund trustee over his “very serious conduct and capability failures”. Ward, who lives in Spain, did not respond to a series of questions posted to him on the social media platform X.
Margaret Snowdon, chair of the Pension Scams Industry Group, which seeks to stamp out malpractice, says the tax bills issued so far have mostly related to sums that the schemes paid out to victims. The £30,000 bill that Cornford has already paid related to a £43,000 payment that he received from Ark. The tax bill consisted of a £24,000 tax bill and £6,000 interest.
The law allows HMRC to demand such sums, Snowdon says. But she insists it is still “tragic” the way the authority is pursuing those involved.
“They’re pursuing them for relatively small amounts in the scheme of things, when what they should be doing is pursuing all these scammers and seizing their assets to pay for the tax losses,” Snowdon says.
Andrew — not his real name — faced such a bill after transferring his £174,000 pension pot from his employer to a scheme called Salmon Enterprises. He received a £140,000 loan in return.
HMRC levied a bill of £89,000 for the loan, while the money he had in the scheme disappeared. Because he put the loan into an unsuccessful property investment, he had to borrow from family to meet the bill.
Andrew is particularly angry that before his transfer request, the Pensions Regulator had already banned Tudor Capital Management, trustees of the Salmon scheme, from handling pensions, saying it was “suspected of being involved in criminal activities”. His previous pension provider failed to spot the bar and made the transfer anyway.
“The whole thing is almost like victims are being treated as perpetrators of fraud,” Andrew says. “We haven’t tried to defraud anybody. We haven’t tried to not pay tax.”
Yet, despite HMRC’s insistence that it is not taxing money lost to misconduct, people who invested in the Ark schemes have received letters warning them they could face bills based on far larger sums than have so far been taxed. The letters, from Dalriada, result from the March tribunal.
The tribunal’s highly complex ruling said HMRC had the right to tax participants on any of their money that the organisers lent to others in the scheme. The taxable amount could be all the money the investor handed over and even, in some cases, a sum higher than was handed over.
“We still haven’t received the final tax bill,” Flood says. “I’m told that it’s too difficult to work out.”
Cornford is anxious he could face 55 per cent tax on the remainder of the £96,000 that he handed over or even more — with interest on top.
“I could be getting a bill of £70,000, £100,000, £150,000,” Cornford says.
The plight of those affected dismays Sir Stephen Timms, the Labour MP who chairs the UK House of Commons’ work and pensions committee. Timms supported the Investment Fraud APPG’s work on the issue.
“There’s absolutely no way they can come up with 55 per cent of whatever the sum was,” Timms says. “There needs to be some discretion in how HMRC deals with these cases.”
Yet there is little sign the approach will change. A person familiar with HMRC’s thinking says the authority regards itself as obliged to recover the tax owed in the Ark cases.
Cornford says a “sword of Damocles” is hanging over him.
“It’s something that never leaves you — that bill is going to arrive and that time is going to come when you have to pay it,” he says.
Snowdon insists it is fundamentally unjust that such predicaments face people who were simply trying to get the “best retirement outcome they could”.
