In HMRC v Parry and others [2018] EWCA Civ 2266 the Court of Appeal held that a failure to exercise pension rights and a statement of wishes leaving death benefits to the deceased’s sons were both transfers of value and IHT was due on the entire pension fund.
Not all dispositions are Transfers of value for Inheritance tax (IHT) purposes: there are a number of exceptions including:
- Dispositions not intended to confer gratuitous benefit (s10(1) IHTA 1984).
Mrs Staveley, who was terminally ill, transferred her pension to a personal pension scheme and then put in place a statement of wishes (SOW) to leave the death benefits to her sons who were the beneficiaries under her will.
- She did not take any lifetime income benefits from her pension.
- She died a few weeks after making the transfer and the SOW.
- The pension administrator, who had discretion over the death benefit payments, complied with her SOW and made a payment to the sons after her death.
- Her executors (who were her sons), claimed that whilst a disposition had been made for IHT purposes there was no transfer of value as there was no intention to confer gratuitous benefit.
- The Upper Tribunal agreed, also finding that the omission to take lifetime benefits did not directly cause an increase in her son’s estate.
- HMRC appealed maintaining their position that two transfers of value had taken place: the benefit conferred on the sons by the SOW, and the failure to take benefits in Mrs Staveley's lifetime.
The Court of Appeal allowed the appeal:
- There was a transfer of value which was intended to confer a benefit on the sons; their position having received a payment under the SOW was improved compared to what it would have been had they inherited under the will. The exemption at s10(1) did not apply.
- The omission to take lifetime benefits was a transfer of value as the sons’ estates were increased as a result.
- There were two transfers of value which did not overlap. The entire value of the pension scheme was subject to IHT.
Links
Pensions: tax rules and planning
IHT: estate planning checklist
External link