Supreme Court ruling in pension transfer and inheritance tax case

reading time 2 minutes

Employee Benefits reported this week that there should be no charge to inheritance tax when it is transferred to an individual’s personal pension plan.

The site reported on a case brought to the Supreme Court relating to a transfer. When Rachel Staveley transferred her pension fund from a company pension to an Axa personal pension plan just before she died in 2006, her pension would have been exempt from inheritance tax had she kept it in her company scheme.

Mrs Staveley transferred her pension according to the rules under section 32 of the Finance Act 1981.

Money not to revert to ex-husband

The Supreme Court heard that Mrs Staveley intended the transfer to avoid her pension reverting to the business she and her ex-husband founded, as that money would then fall to him.

At the time, she was terminally ill with cancer. HM Revenue and Customs (HMRC) treated her actions as a ‘transfer for value’, followed by an omission to act because she drew no benefits from the pension while still alive.

It was thus concluded that the transfer was not intended to reward her primary beneficiaries (her sons) but to avoid the funds going into the business.

Missing, dormant and unclaimed assets? Finders International runs a quick-search service aimed at establishing the full value of an estate, including a search of more than 150 financial institutions and pension fund administrators. Find out more here.

The court found that the decision to neglect the income benefits while Mrs Staveley was alive created an increased value of the funds. This aspect was appealed by HMRC and allowed.

In the Employee Benefits article, Clare Moffat, Royal London’s head of intermediary development and technical, said the Supreme Court’s decision in this case made it clear intention is crucial when a pension transfer or switch is made when someone is terminally ill.

If there was an intention to give benefits that had not existed before, it would be subjected to inheritance tax.

However, she added, a discretionary DC to DC switch could be done without worrying about inheritance tax for genuine commercial reasons and if the beneficiaries on the expression of wish form were the same.