HM Revenue & Customs has lost a tribunal appeal that could set a precedent for the two-year inheritance tax rule on pension transfers.
The case concerns the estate of woman who transferred her section 32 contract to a personal pension to avoid her former husband benefiting from it.
The transfer took place just weeks before the woman, Mrs Staveley, passed away in 2006 after developing cancer two years earlier.
In cases where a person dies within two years of making a pension transfer, knowing they were in ill-health at the time of the transfer, HMRC designates it a “transfer of value” to decrease the amount of IHT that might be paid because the estate’s value has decreased.
In Staveley’s case, HMRC argued the transfer took place for the purpose of IHT planning because she moved her funds from an IHT environment to a non-IHT environment.
In the initial decision, the tax tribunal disagreed with HMRC, but the Upper Tribunal has now overturned HMRC’s appeal.
AJ Bell platform technical head Mike Morrison says the decision could set a precedent.
Morrison says: “The key principle from the Staveley case is the court has ruled no IHT is due because there was no intention to avoid IHT.
“If this principle is applied to pension transfers from one trust-based scheme to another, then the two-year rule will fall away because there would have been no IHT liability in the first place and so clearly there would be no intention to try and avoid IHT.”