Analysis
Mrs Staveley established a company known as Morayford with her husband Mr Staveley. She was director of the company, and had a large pension fund with its occupational pension scheme. She divorced from her husband in 2000. Indeed the terms of the divorce, her share of the pension scheme was to be transferred to her. In July 2000, and upon advice, she transferred her fund from the Morayford scheme to a s32 scheme.
In 2004, she was diagnosed in December 2004 with cancer. In 2006, by which time her prognosis was poor, she was advised to transfer her pension fund into a personal pension plan (a ‘PPP’). She accepted this advice on account of her concern that surplus funds would be returned to Morayford, therefore benefitting her ex-husband.
She was also advised that under either the s32 scheme or the PPP, there would be no inheritance tax upon it passing to her beneficiaries. This was incorrect, as it was a term of the s32 policy that the fund would be paid to her executors and would form part of her chargeable estate for inheritance tax purposes.
Accordingly, in or around November 2006, the funds were transferred from the s32 policy to an Axa PPP (the ‘transfer’). The benefits were to be held on discretionary trust by her trustees for her sons, her grandchildren and her legal representatives. She signed an expression of wishes that death benefits be paid equally to her two sons.
She died on 18 December 2006. She never opted to take any lifetime benefits under the PPP policy, the result of which was that the pension administrator paid out death benefits in accordance with the terms of the policy. HMRC issued two notices of determination: (1) that the transfer was a transfer of value; and (2) that the omission by Mrs Staveley to take any lifetime benefits under the PPP (the ‘omission’) was a transfer of value by Mrs Staveley. Both events, HMRC argued, were chargeable to inheritance tax.
Mrs Staveley’s personal representatives appealed, and the matter went to the First-tier Tribunal (the ‘FTT’). The FTT held that the Transfer was not a transfer of value, but that the omission was chargeable. HMRC appealed FTT’s decision as to the transfer, and the appellants appealed the decision as to the omission.
Held:
- 1) As to the question of the transfer, the FTT’s analysis was correct. Section 10 IHTA 1984 applied such that the disposition was not a transfer of value.
- 2) Mrs Staveley’s sole motive in making the transfer was to sever all ties with Morayford. IHT planning did not form part of her motivation, because she was under the mistaken impression that the transfer was IHT neutral. This was a determination of fact, and the very high threshold for overturning such determinations on appeal had not been crossed. There was no gratuitous intent in relation to the transfer, because her two sons were beneficiaries of the funds before the transfer.
- 3) Further, the transfer was at arm’s length between people not connected with one another.
- 4) Associated operations did not arise in connection with the transfer and the omission. On the facts of the case, the necessary intention needed to be shown for the combination of the transfer and the omission was not present. There as no common intention in relation to both the transfer and the omission.
- 5) As to the question of the omission, the FTT’s analysis was incorrect. In the absence of evidence that the discretion conferred upon the administrator was a sham, it was open to the FTT to find only that there was a genuine exercise of discretion by the scheme administrator. There was no sufficient causal link between the omission and the increase in value of the sons’ estate. Accordingly, there was no disposition arising by virtue of s3(3) IHTA 1984.
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