Supreme Court considers IHT issues of gratuitous benefit and transfer of value for pension fund transfers omission to take benefits

Supreme Court considers IHT issues of gratuitous benefit and transfer of value for pension fund transfers omission to take benefits

Mon 09 Nov 2020

The Supreme Court has partially overturned the Court of Appeal in the case of Parry and others (see the press release and decision).   While the case concerned legislation and practice with respect to pension funds now superseded for dispositions made on or after 6 April 2011 (as a result of new IHTA 1984 s12(2A)), there may be useful principles to take from the case concerning when gratuitous intent exists and when there is a transfer of value.

Contrary to the Court of Appeal, the Supreme Court held that the transfer of funds from a deferred annuity contract to a personal pension plan, undertaken shortly before Mrs Staveley’s death in December 2006, was not a transfer intended to confer gratuitous benefit.  Therefore it did not amount to a transfer of value as a result of IHTA 1984 s10.  The Supreme Court considered the intended beneficiaries were the same before and after the transfer. 

In agreement with the Court of Appeal, the Supreme Court held that the omission to take benefits would result in someone’s estate increasing and therefore (according to the legislation in force at the time), there was a transfer of value as a result of IHTA 1984 s3(3).

In broad summary the purpose of the transfer between pension funds by Mrs Staveley was to ensure her ex-husband could not benefit, should surplus funds from the deferred annuity contract be returned to the company which set it up for her.

HMRC guidance at IHTM17037 does indicate that the transfer of value issue concerning the failure to take benefits, no longer applies for deaths occurring on or after 6 April 2011 – for a member of a registered pension scheme (amongst others).

For a further discussion of the tax issues around pension transfers and death benefit, particularly where for those reaching the age of 75, please get in touch with a member of the Mazars personal tax or financial planning teams.