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