Staveley verdict needs further guidance

1 year ago

I last wrote about Mrs Staveley in my blog of June 2019, and the name will be familiar to many. Mrs Staveley passed away back in December 2006 having transferred her pension just a few weeks earlier whilst in full knowledge of her terminal condition. The decision as to whether IHT was chargeable has been back and forth through the courts and in August we finally had our answer in the form of a decision from the Supreme Court.

HMRC claimed IHT was payable on two counts:

  1. the pension transfer was a lifetime transfer of death benefits; and
  2. omission to act as Mrs Staveley chose not to take benefits in her lifetime.

The omission to act point is no longer relevant to pension drawdown cases, as the rules changed for deaths on or after 6 April 2011. It is the point on transfers that has been closely watched with interest as the question remained as to whether this was a lifetime transfer liable to IHT.

The argument that IHT was not payable was based on section 10 IHTA84. This clause states that “A disposition is not a transfer of value if it is shown that it was not intended, and was not made in a transaction intended, to confer a gratuitous benefit on any person…”. Therefore the case all hinged on the motive for Mrs Staveley’s transfer. Was it to benefit her two sons (who were the beneficiaries of the personal pension), or was it something else?

Mrs Staveley had previously had an acrimonious divorce, and her pension funds originated from the occupational scheme set up by the company she had started with her husband. The Supreme Court found that the transfer had not been motivated by any intention to improve her sons’ position and that Mrs Staveley’s sole intention was to stop funds going back to her ex-husband (she was under the impression that surplus funds would be returned to the sponsoring employer – which her ex controlled). This meant no IHT was chargeable in relation to the transfer.

This is good news for those wanting to transfer their pension when in ill health – but it doesn’t mean IHT will never apply. For those transferring to flexibly access benefits or to access certain investments (for example), if this is the main driver and evidenced as such, then IHT is unlikely to apply. But if the real reason for the transfer is to improve death benefits, section 10 would not apply and the transfer could still be caught.

In its IHT report of last summer, the Office of Tax Simplification considered “It would be helpful if HMRC were to provide further guidance on the circumstances in which a gratuitous benefit may arise when making certain pension transfers, such as from a defined benefit scheme into a personal pension scheme shortly before death.” Now we have had the Supreme Court ruling, let’s hope this guidance is forthcoming.

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Lisa Webster

Lisa Webster

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Senior Technical Consultant

Lisa is an Economics graduate who has been in the financial services industry since 2003. Prior to joining AJ Bell in 2014 she spent nine years working in senior technical and consultancy roles at a major SIPP and SSAS provider. Lisa is part of our Technical Team, responsible for providing regulatory and technical analysis to the business and outside world. She is also a regular speaker at adviser events.

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