Staveley case – ill-health pension transfers and inheritance tax
The UK’s Supreme Court has given the final judgment in the long-running Staveley case of HMRC v. Parry and others, a landmark ruling for ill-health pension transfers.
Mr and Mrs Staveley had previously set up a company together but, in 2000, they went through a bitter divorce. While she was a director of the company, Mrs Staveley had accumulated a large occupational pension fund and so she transferred her share to a section 32 buyout policy. In 2004, she was diagnosed with cancer, which was initially treated successfully but returned in 2006 and was then terminal.
As it stood, the pension was still invested in the section 32 policy, so any death benefit payable would have gone to her estate and would have been subject to inheritance tax (IHT).
Therefore, Mrs Staveley transferred her section 32 policy to a personal pension and her new policy commenced on 9th November 2006.
Under the personal pension, any death benefit was payable at the appointed trustees’ discretion and Mrs Staveley could nominate people for consideration. She nominated her two sons. Mrs Staveley did not take any pension benefits at all during her life and, following her death, the death benefit was paid out in accordance with her wishes (her two sons) in 2007.
HMRC determined that IHT was due on the basis that both the transfer of funds into the personal pension and Mrs Staveley’s omission to draw any benefits before her death were lifetime transfers within section 3 of the Inheritance Tax Act (IHTA) 1984.
The two sons and their solicitor, Mr Parry, appealed as executors of the estate to the First-tier Tribunal. The appeal was partially successful in that the tribunal held that the transfer was prevented from being a transfer of value because it was not intended to confer any gratuitous benefit on anyone.
However, it was held that the omission to take any benefits did give rise to IHT as it had increased the sons’ estates when Mrs Staveley could have drawn those benefits. Each side appealed to the Upper Tribunal, which ruled that no IHT was payable on either transaction. HMRC appealed to the Court of Appeal, which held that both the transfer and the omission gave rise to IHT.
The Supreme Court, by a majority, partially allowed the executor’s appeal. It clarified that ‘intention’ is crucial when a pension transfer or switch is made in terminal ill-health. It held that the omission to draw benefits did give rise to IHT but the transfer did not. Therefore, a charge to IHT arose from the part of the benefit affected by the omission.
Capita comment
The long-awaited judgment was arrived at only by a majority and the outcome changed at every stage of the judicial process. However, in the end it is reassuring that the transfer itself did not create an IHT liability. The Supreme Court confirmed the emphasis on ‘intention’, and this is crucial when determining whether a liability to IHT has arisen on a pension transfer or switch made in terminal ill-health.
A transfer out to a different pension scheme will not be a transfer of value when there was no intention to confer a gratuitous benefit.
Equalising pension ages did not prejudice women
In the case of Delve and Glynn v the Secretary of State for Work and Pensions, two women brought legal proceedings against the Government to challenge the increase in their State Pension age. This age was raised by a series of Pensions Acts between 1995 and 2014, which equalised the State Pension age for women with that of men, and then increased the State Pension age for men and women, depending on their date of birth, to 68.
The two appellants were born in the 1950s, and their main argument was that these changes brought direct age discrimination contrary to Article 14 of the European Convention on Human Rights. They claimed that women born in the 1950s weren’t treated equally with men during their working lives and they therefore arrive at their 60s in a poorer financial position than men of the same age.
The Divisional Court dismissed their claim in October 2019, but they were given permission to appeal.
Their appeal was rejected by the Court of Appeal on 15th September 2020.
The Court was satisfied that this was not a case where it can interfere with the decisions taken through the parliamentary process.
The evidence showed that the Government was faced with an urgent need to reform State Pensions because of the projected increase in the number of pensioners combined with a decrease in the number of people of working age contributing to the National Insurance fund. The Court stated that “…it cannot say that those decisions were manifestly without reasonable foundation”, which is the relevant test.