Long-running Staveley case clarifies ill-health pension transfer rules

Hannah Godfrey reports

The long-running HM Revenue & Customs (HMRC) v Parry & Ors case, otherwise known as the Staveley case, has concluded Staveley’s actions gave rise to an inheritance tax bill, bringing clarity around pension transfers or switches made in ill-health.

The Staveley case was first heard in 2014 and is based on whether inheritance tax (IHT) should be applied to a pension transfer carried out in terminal ill-health.

After a difficult divorce Ms Staveley transferred part of a pension she had set up with her husband into a new pot and bequeathed it to her children. She died just weeks later.

Because she was terminally ill, HMRC treated the transfer as a “transfer of value” followed by an “omission to act” as she did not draw any benefits, and applied IHT. It argued the two actions were linked and designed to reduce the value of her estate for IHT purposes. It has since been through the Upper Tribunal and Court of Appeal before being referred to the Supreme Court.

By a majority, the Supreme Court partially allowed the appeal, holding that the omission gave rise to a charge to inheritance tax, but the transfer did not.

Royal London head of intermediary development and technical Clare Moffat said the Supreme Court’s decision clarified that intention is “crucial” when a pension transfer or switch is made in terminal ill health.

“Where there is an intention to give benefits which didn’t exist before, such as a defined benefit (DB) to defined contribution (DC) transfer, it will be subject to IHT,” she explained.

“But a discretionary DC to DC switch may be completed without worry of IHT if it is for genuine commercial reasons and the beneficiaries on the expression of wish form stay the same.”

Curtis Banks pension technical manager Jessica List added: “The judgments have changed at every stage, and even in this final ruling the judges were not in complete agreement, showing what a highly contentious issue this has been.

“It’s hugely reassuring for the industry that the transfer itself has been found not to create an IHT liability, for reasons which would seem to set a precedent for other similar cases.”