In HMRC v Parry and others [2020]UKSC 35, the Supreme Court found that a pension scheme transfer was not a transfer of value subject to IHT but not taking lifetime benefits from the scheme was.

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 (s.10(1) IHTA 1984).

Mrs Staveley was terminally ill and was concerned that her pension funds may go to her ex-husband on her death.

  • She transferred her pension to a personal pension scheme making a statement of wishes (SOW) to leave the death benefits to her sons. She died a few weeks later.
  • She did not take any lifetime income benefits from her pension.
  • The pension administrator followed the SOW and made a payment to the sons after her death.
  • Her sons claimed there had been no transfer of value as there was no intention to confer gratuitous benefit.
  • The Upper Tribunal agreed and allowed their appeal.
  • HMRC took the case to the Court of Appeal, which allowed that appeal on the basis that:
    • There was a transfer of value which was intended to confer a benefit. The sons’ position was improved compared to if they had inherited under the will.
    • The omission to take lifetime benefits was also a transfer of value.
    • The two transfers of value did not overlap and the full value of the pension scheme was subject to IHT.

The Supreme Court allowed the appeal but in part only:

  • The omission to take lifetime benefits was a transfer of value of £302,498 and was subject to IHT.
  • The transfer between schemes worth £405,694 was not a transfer of value. The motive behind the transfer was not to confer a benefit but to ensure the funds could not be returned to her ex-husband.
  • The omission and transfer did not form part of a scheme. The omission, which was a transfer of value, could not taint the transfer between schemes and make it a transfer of value too.

One judge would have allowed the appeal on both counts but he was overruled by his fellow judges. The case now sets a clear precedent for the IHT treatment of pension transfers made by individuals suffering from ill-health.

Links

IHT: Transfer of value
What is a transfer of value for Inheritance Tax (IHT) purposes?

Pensions: Tax rules and planning
Pensions are a tax-advantaged method of saving: funds inside a pensions wrapper are not subject to tax and so income and capital grow tax-free within a registered scheme, while contributions can attract tax relief.

IHT: Estate planning checklist
This checklist covers some of the essential planning points that taxpayers should know when planning for their estate and inheritance tax.

External link

HMRC v Parry and others [2020] UKSC 35

 

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