The Supreme Court (SC) has ruled on an inheritance tax (IHT) case where the deceased had transferred her company pension to a personal pension plan shortly before her death.  The deceased had set up a company with her former husband and wished to ensure that he or his company didn’t benefit from the funds held within the pension on her death.  She arranged for the pension funds to be transferred to a personal pension plan and nominated her sons as beneficiaries, with discretion to the trustees.  She never drew any benefits from the personal pension plan.

A majority of the SC judged that the principal purpose for moving the pension funds was not one that was intended to confer gratuitous benefit on her sons, although this was the outcome of the transfer.  The intention of the transfer was to stop the funds reverting to her former husband and the company.  Therefore, IHT was not due on the transfer.

The deceased had not drawn any lifetime benefits from her personal pension fund and this omission had increased the value of her estate.  The SC considered whether this was a transfer of value for the purposes of IHT and found that this was indeed a transfer of value and therefore subject to IHT.  It was a deliberate act of the deceased to omit drawing benefits from the pension so to pass more onto her sons.  Even though no funds were drawn after the transfer, this didn’t taint the analysis that transfer of the pension funds was not one intended to confer a gratuitous benefit and therefore IHT free.

The decision can be found at: Commissioners for Her Majesty’s Revenue & Customs (Respondent) v Parry and others (Appellants) – The Supreme Court

Planning for inheritance tax is a sensible part of financial planning and effective planning can substantially reduce exposure to the 40% charge.  Please do contact us if you have any questions or need assistance with inheritance tax.