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Press comment: Staveley case ruling reveals law is on HMRC's side, but rules are still cruel

19/10/2018

This week the Court of Appeal ruled in favour of HMRC’s approach to pension transfers in the case of ill health. Meaning if someone transfers their benefits when they know their life expectancy is impaired and they die within the following two years (or later in certain circumstances) it is subject to inheritance tax. 

Case Summary:

The case involved a woman called Mrs Staveley, who, following a hostile divorce, transferred pension benefits into a personal pension scheme when she was terminally ill in November 2006.

In December 2006, Mrs Staveley died without crystallising her personal pension benefits. As she knew she was terminally ill when she made the transfer, HMRC treated it as a “chargeable lifetime transfer” followed by an “omission to act” (by not drawing any personal pension benefits), arguing the two actions were associated and deliberately designed to reduce the value of her estate for IHT purposes. Consequently, they applied an IHT charge.

Mrs Staveley’s legal personal representatives and two sons challenged HMRC. Following a previous first-tier tribunal decision, the Upper Tribunal of the Tax and Chancery Chamber rejected HMRC’s arguments in January 2017. The court decided any IHT advantage gained from her transfer and not taking any benefits was not intended to confer gratuitous benefit, as the main reason was to prevent any excess element from being returned to her ex-husband’s sponsoring employer.

The court of appeal has now overturned that ruling in favour of HMRC.

Ian BrowneIan Browne, pension expert at Quilter comments:

Law is on the side of HMRC, however, that doesn’t make the current rules around pension death benefits any less cruel. They essentially penalize people who have a terminal illness for good financial planning.

This is a legacy of an outdated inheritance tax system, which remains off kilter with pension freedoms. Under the current rules, if a pension transfer is made while someone is in ill-health then there is a risk that HMRC will challenge the IHT-free status of the death benefits if the person passes away within two years of the transfer. In the upcoming Budget and Inheritance Tax Review the Chancellor has the power to set this glaring discrepancy straight.  

The situation arises if the member transfers their benefits when they know their life expectancy is impaired and they die within the following two years (or later in certain circumstances).

However, at the moment for anyone  who knows their life expectancy is impaired, they should assume a full transfer value is taxable. However, even with the possibility of IHT, a transfer may still be beneficial, for example, if there was no (or a very limited) death benefit payable from the member’s scheme and a much higher one (even after taking account of any IHT charge) payable from the receiving scheme. Getting financial advice can help people navigate this convoluted system. 

For more information contact

Kathleen Gallagher023 8072 629307990 004932kathleen.gallagher@quilter.com

Notes to editors:

About Quilter plc:

Quilter plc is a leading wealth management business in the UK and internationally, helping to create prosperity for the generations of today and tomorrow.

Quilter plc oversees £118.1 billion in customer investments (as at 30 September 2018).

It has an adviser and customer offering spanning: financial advice; investment platforms; multi-asset investment solutions and discretionary fund management.

The business is comprised of two segments: Wealth Platforms and Advice and Wealth Management.

Wealth Platforms includes the Old Mutual Wealth UK Platform; Old Mutual International, including AAM Advisory in Singapore; and the Old Mutual Wealth Heritage life assurance business.

Advice and Wealth Management encompasses the financial planning network, Intrinsic; Quilter Private Client Advisers; discretionary fund management business, Quilter Cheviot; and Quilter Investors, the Multi-asset investment solutions business.

The Quilter plc businesses are being re-branded to Quilter over a period of approximately two years:

• The Multi-asset business is now Quilter Investors

• Intrinsic to Quilter Financial Planning

• The private client advisers business is now Quilter Private Client Advisers

• The UK Platform to Quilter Wealth Solutions

• The International business to Quilter International

• The Heritage life assurance business to Quilter Life Assurance

• Quilter Cheviot will retain its name

This press release is for journalists only and should not be relied upon by financial advisers or customers.

Please remember that past performance is not a guide to future performance. The value of investments and the income from them can go down as well as up and investors may not get back any of the amount originally invested. Exchange rate changes may cause the value of overseas investments to rise or fall.

This communication is issued by Quilter plc.  Registered office: Millennium Bridge House, 2 Lambeth Hill, London EC4V 4AJ, United Kingdom. Registered number: 6404270.  Registered in England.