A precedent for the two-year inheritance tax rule on pension transfers may have been set by a tribunal case lost by HM Revenue & Customs.
Centring on a woman who wished to prevent her former husband benefiting from her personal pension, the case concerned the transfer of a section 32 contract.
The woman, Mrs Staveley, died just several weeks before the transfer took place, having developed cancer two years earlier.
Where it was known that an individual was in poor health at the time of transfer and they pass away two years within making it, the amount of inheritance tax (IHT) due may be reduced by HMRC. This can occur if HMRC designate it a ‘transfer of value’ because the value of the estate has fallen.
HMRC contested that in the case of Staveley, the transfer took place for IHT planning purposes, as she moved the money to from an IHT environment to a non-IHT one.
Although the tax tribunal disagreed with HMRC’s argument in the initial verdict, the Upper Tribunal subsequently overturned their appeal.
Commenting on the case was Mike Morrison. The AJ Bell platform technician highlighted the potential for a precedent to be set and the likely impact on future claims.
“The key principle from the Staveley case is the court has ruled no IHT is due because there was no intention to avoid IHT.
“If this principle is applied to pension transfers from one trust-based scheme to another, then the two-year rule will fall away because there would have been no IHT liability in the first place and so clearly there would be no intention to try and avoid IHT.”
