A former satellite executive has fought off an attempt by the British taxman to seize almost £3 million from his pension.
But his dreams of retiring to the UAE with a £6m lump sum have been dashed in the process.
Ramin Khadem, 75, retired to the UAE to be near his daughter in 2018 after working for decades as a chief finance officer for telecom and satellite infrastructure firm Inmarsat in London.
As he approached his mid-70s, and his wife approached her retirement, they discussed where they should live. Their three adult children each have families and resided in Canada, UAE and London.
The couple decided to move to the UAE, where Mr Khadem's wife would join him when she retired from her roles as a consultant at London's Great Ormond Street Hospital and as a professor at University College London.
Before leaving the UK, Mr Khadem's company pension trust signed an agreement to give him his £6 million ($8m) pension as a lump sum as he was due to become a UAE resident, believing it would not be liable to tax.
However, when he returned to the UK in March 2020 to visit his wife, he ended up stranded there as borders closed in response to the pandemic.
It led to the UK's tax authority, HMRC, seeking for Mr Khadem to pay 45 per cent tax, plus interest on the tax, on the £6m lump sum as he was no longer a permanent UAE resident.
When he and the pension trust investigated the issue, they discovered the advice they had received in making the agreement to pay a lump sum had been incorrect, London's High Court heard.
The mistake related to the timing of his application for a tax-domicile certificate and the payment of the lump sum.
JTC Employer Solution Trustees brought a case on behalf of the Inmarsat Employment Company Pension Plan to see the agreement cancelled and to retrieve the £6m.
Judge Jarman said the mistake was of “sufficient gravity” that it needed to be corrected and upheld the firm’s application.
“I consider that the agreement was entered into because of the mistake, which was a causative mistake of sufficient gravity, and which it would be unconscionable to leave uncorrected,” he said.
“The claimant is entitled to the relief that it seeks.”
HMRC had asked the court not to withdraw the agreement.
But the company claimed that had it received the correct advice it would not have paid the lump sum and would have instead made a gradual series of payments – not all of which would have been taxable in the UK.
“[It meant] that a large charge to UK tax, in the region of 45 per cent, arose on the sum which is the subject of the agreement,” the judge said.
“It is the claimant's case that had it not made a mistake of fact as to the practice of the UAE in issuing the certificate, it would not have entered into the agreement, but instead would have made some other arrangement.
“One option would have been to make pension payments to Mr Khadem over a 10-year period, leading to less tax being paid depending on his circumstances, or at least to the deferral of the payment of tax, which deferral in itself is of value.
“In my judgment these factors are such as to make it unconscionable for the mistake to remain uncorrected. It may be that the difference will be limited to interest on the underlying tax. That in itself would be significant.
“However, there is a realistic possibility that the difference will be significantly more than that, depending on Mr Khadem's circumstances.
“Setting aside the agreement will not lead to his avoiding paying any UK tax which is due from him on payments from the plan made to him while he is resident in the UK.”
HMRC claimed the situation was a “consequence of the temporary residence rules rather than an unfairness which needs correcting by the court”.
Iranian-born Mr Khadem, who has chaired the International Space University, told the court that following the pandemic it is “not likely” he will leave the UK in the near future.
He is now entitled to his pension in a series of payments, instead of being liable to paying 45 per cent tax, including interest on the tax, on the full £6m lump sum.