A taxing case

Recently the supreme court made a ruling about pensions and inheritance tax (IHT) – two important topics of conversation for our clients.

As much as we love to focus on making life count and helping you realise your goals, tax and legacy are two essential parts of our approach.

It’s why we wanted to update you on a ruling that’s been years in the making – it’s good news so don’t worry if you’re a little tired of all the negative messages from the media recently.

The case

It’s the HM Revenue & Customs (HMRC) v Parry & Ors case, otherwise known as the Staveley case.

Ms Staveley, who was recently divorced and terminally ill moved part of her pension into a new pot and left it to her children.

Just a few weeks later she died and HMRC treated it as what’s called a ‘transfer of value’. Claiming the act was made to reduce the value of her estate – ultimately reducing the amount of IHT payable.

If you want the nitty gritty on the case details, click here.

What’s unfair about this?

It’s widely acknowledged that pensions are not usually subject to IHT. Ms Staveley made the transfer without changing the purpose of the pension pot or the beneficiaries – many industry professionals felt it was an unfair move from HMRC. One that could affect hundreds of people over the years.

The case began in 2014 and concluded just weeks ago – this in itself explains how contentious the issue was!

The outcome

Eventually the supreme court ruled in favour of Ms Staveley, deciding that her decision not to draw pension benefits gave rise to inheritance tax but the transfer from one pension scheme to another did not– an outcome welcomed by investors and wealth managers alike. This now sets the precedent for similar situations going forward.

The important point to remember is that if a pension switch is made for commercial reasons, such as to reduce investment charges or obtain more flexible retirement or death benefits, then it can proceed without concern of creating an IHT liability.

Transfers from defined benefits (final salary) pensions are likely to still be more complex as a transfer may create benefits which didn’t exist before.

What this means for you

If you’ve read about this case it may have got you thinking about your pots and the changes you may desire to make in the future.

Rest assured it’s now very unlikely you’ll be penalised for changes you make, in ill health or not.

Get in touch with our team if you need support with your pension or inheritance tax planning. Simple changes like who you’ve nominated as the beneficiaries on your pension can make a big difference to your loved ones after your death.

This communication is for general information only and is not intended to be individual advice. You are recommended to seek competent professional advice before taking any action.