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Changes might be on the horizon for the rules surrounding inheritance tax (IHT) on pension transfers, after an appeal from HM Revenue & Customs (HMRC) was recently rejected.

The case centred on a Mrs Staveley, a woman who did not want her former husband to benefit from a pension she had originally set up with him. Following a bitter divorce, she transferred a portion of this pension into a new, personal pension.

Mrs Staveley sadly died a few weeks after making the transfer.

She had been terminally ill at the time, so the transfer was classed by HMRC as a “chargeable lifetime transfer”. This meant that IHT was applied, as can arise where the individual is aware that their life expectancy is impaired and they then die within two years of making the transfer.

After her family challenged the imposed tax, HMRC ultimately lost the case, as it was held that, if any IHT benefit had been gained from the transfer, it was “not intended to confer gratuitous benefit”.

Unfortunately the specific circumstances of Mrs Staveley’s case do not automatically set a precedent for all other pension cases, and in order to properly clarify the situation, a more substantial overhaul of HMRC guidance may be needed. 

The intention behind Mrs Staveley’s transfer was clearly to prevent her ex-husband from accessing pension money. In other cases, the motivation might actually be to avoid IHT, and although HMRC might publish guidance on this in the future, it’s important to know where you stand now.

The law around IHT is complicated, but talking to an experienced advisor can make things much clearer. When it comes to the future of you and your loved ones, it’s essential that you get the best advice.

Heir Tight Wills helps clients understand the implications of their situation, and put in place robust provisions to protect their loved ones and their assets both during their lifetime and after their death.  For a FREE Consultation to discuss your estate planning provisions, contact Rachael Rodgers on 0845 519 7585, or CONTACT US via email.

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