On 19 August, after six years of making its way through the courts, the Staveley case finally came to a close with the release of the Supreme Court’s final judgment.
The case centres on whether a person can create a potential inheritance tax (IHT) liability by transferring a pension while knowingly in ill-health.
Mrs Staveley had a section 32 pension as a result of an acrimonious divorce in 2000.
Under the pre A-Day pension rules, the surplus in this pension might have been returned to Mrs Staveley’s ex-husband’s company on her death.
Mrs Staveley was keen to remove the risk of that happening, and as a result, transferred to a personal pension in late 2006, a few weeks after receiving a terminal prognosis for cancer.
Mrs Staveley died a few weeks later, and her sons received the death benefits from the personal pension after the administrator followed Mrs Staveley’s expression of wishes to that effect.
Mrs Staveley’s sons were also the beneficiaries of her will, so would have received death benefits from the section 32 policy via the will had the transfer not taken place.
HMRC argued that Mrs Staveley had created two ‘transfers of value’ for inheritance tax purposes. A transfer of value is defined in Section 3(1) of the IHT Act 1984 as:
“…a disposition made by a person (the transferor) as a result of which the value of his estate immediately after the disposition is less than it would be but for the disposition…”
HMRC argued that Mrs Staveley had created one transfer of value by transferring to the personal pension, and a second by her deliberate decision not to take pension benefits herself during her lifetime.
These questions have divided the courts ever since. The Supreme Court’s final decision is that the transfer did not create a transfer of value, but the omission to access pension benefits did.
Thankfully, while the second ruling is not what Mrs Staveley’s appellants were hoping to hear, it should not be a cause for concern for the wider industry in terms of how it may apply to more recent comparable cases.
It centres on Section 3(3) of the IHT Act, which says that a person can create a transfer of value if they omit to exercise a right which results in the value of their estate being diminished and someone else’s increasing.
However, in 2011, a new exemption was added (Section 12 (2ZA)) which confirms that someone omitting to exercise pension rights under a registered scheme will not be caught by Section 3(3).
This was read as confirmation that deciding when to access a pension falls firmly within the realms of planning, and a decision to delay should not be seen as IHT avoidance.
As the first Tribunal judgment in this case was published after that rule change, most of the attention over the last six years has been on the second issue: whether the transfer itself created a transfer of value.
— to www.ftadviser.com