Landmark Judgment To Shape Future Of Pension Transfers

The Supreme Court has ruled that in ill-health pension transfer is not liable for inheritance tax, giving clarity to the rules for wealth planners.

The Supreme Court handed down its judgment on HMRC v Parry & Ors, also known as HMRC v Staveley, which has rumbled on for six years.

The decision concerned the actions of terminally ill woman Ms Staveley, who in 2014 transferred some of her pension that had been set up with her ex-husband into a different pension pot just for her children. Ms Staveley died just weeks later.

HMRC classed the money transfer as a ‘chargeable lifetime transfer’ as well as an ‘omission to act’ as Ms Staveley drew no benefits, saying that the two acts were linked and therefore liable for inheritance tax.

While the Court of Appeal had awarded in favour of HMRC in June 2018, the Supreme Court only upheld some of the Court’s judgment, ruling that inheritance tax could be charged on the ‘omission to act’ but not on the ‘chargeable lifetime transfer’.

The Supreme Court found the reason Ms Staveley had made the transfer was to make sure none of the pension could be returned to her ex-husband after their acrimonious divorce, and that she did not “intend to confer a gratuitous benefit [to] her sons”.

Wealth planning experts at national law firm Irwin Mitchell say the judgment provides welcome clarity, but caution is needed for similar situations.

Expert Opinion

“After six long years we finally have some resolution on this case, which is undoubtedly a landmark judgment that wealth planners will need to take heed of.

“The Supreme Court’s judgment is undoubtedly good news; for many years there has been uncertainty over the tax treatment of pension transfers for clients in ill health despite there being good financial planning reasons for a transfer. This uncertainty has now been removed and professional advisers and can now speak to their clients with more confidence.

“However, a word of caution is needed: the decision took six years to reach and was not unanimous, so this isn’t a one-size-fits-all situation. Careful financial planning is always a good idea.” David Gooding - Wealth Manager & Senior Associate