Mrs Staveley moved pension funds to a different plan and did not take benefits before her death. Her executors disputed two inheritance tax charges. The Supreme Court treated the decision to transfer and the omission to draw benefits separately under the legislation then in force.
Mrs Staveley died in December 2006. Shortly beforehand she transferred funds from a section 32 buy-out policy into a personal pension plan and nominated her two sons to be considered for any death benefit, subject to the scheme administrator’s discretion. She took no lifetime benefits. The administrator later paid the death benefit to her sons. HMRC determined that both the transfer and the omission to draw benefits were lifetime transfers of value chargeable to inheritance tax. Her executors (her sons and a solicitor, Mr Parry) appealed.
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The First-tier Tribunal held that section 10 protected the transfer but that the omission was taxable under section 3(3). The Upper Tribunal held that neither transaction was taxable. The Court of Appeal held that both were taxable. The executors appealed to the Supreme Court.
The transfer
It was agreed that the transfer reduced the value of Mrs Staveley’s estate, because she ceased to be able to direct the death benefits into her estate, and was therefore capable of being a transfer of value under section 3(1). Section 10(1) provides that a disposition is not a transfer of value if it is shown that it was not intended, and was not made in a transaction intended, to confer any gratuitous benefit on any person.
The First-tier Tribunal found that her sole motive was to prevent any surplus returning to Morayford Ltd, the company she had run with her former husband, and possibly benefiting him. She was not motivated by tax and mistakenly thought the transfer would not affect inheritance tax. Her sons were already entitled under her will to any death benefit from the section 32 policy.
Lady Black (with whom Lord Reed and Lord Kitchin agreed) held that section 10 applied to the transfer taken alone. The words require an intention to grant an advantage. A purely legal comparison of rights before and after the disposition is not enough, and it is artificial to treat existing rights as falling to nothing at the moment of transfer. In practice the sons had no enforceable entitlement either before or after; the only material difference was the identity of the decision-maker. Apart from an inheritance-tax saving she had not intended, their position was not improved. She never had the funds at her free disposal outside the pension arrangements.
Associated operations
Section 10 also asks whether the disposition was made in a wider transaction—including associated operations under sections 10(3) and 268—intended to confer a gratuitous benefit. HMRC argued that the transfer and the omission should be taken together, because part of her reason for not drawing benefits was to leave more for her sons.
Following the approach in Macpherson, an associated operation is relevant only if it forms part of and contributes to a scheme which confers and is intended to confer a gratuitous benefit; the individual step need not itself have been made with that intention. The majority held that the two steps were not so linked. The Tribunal had found that the decision not to draw benefits was taken independently and earlier, and was not connected in her mind with the transfer. The transfer was made solely to sever the link with Morayford. The sons could have received death benefits under the existing policy without any transfer, so the transfer was not a contributory part of a scheme to benefit them. Section 10 therefore continued to apply.
Lord Hodge (with whom Lord Sales agreed) dissented. He accepted that the transfer was not itself motivated by a wish to benefit the sons, but considered that she had a continuing scheme to confer the death benefits on them by omitting to draw a pension. The transfer and nomination substituted an alternative mechanism for achieving that result and were therefore part of a transaction intended to confer a gratuitous benefit. He would have held that section 10 did not protect the transfer.
The omission
Section 3(3) treats a deliberate omission to exercise a right as a disposition where it diminishes the person’s estate and the value of another person’s estate is increased by the omission. The Tribunal had found that benefiting her sons was part of her motivation, so section 10 could not apply if section 3(3) was satisfied. The dispute was whether the administrator’s discretion broke the causal link.
The Court held unanimously that it did not. The omission produced the death benefits that increased the sons’ estates and was the operative cause. Section 3(3) does not require the diminution and the increase to be simultaneous, or the omission to be the only cause. It is enough that another person’s estate is increased; that would have occurred whichever eligible person the administrator chose. The omission was therefore a deemed disposition and a transfer of value.
Verdict: The executors’ appeal succeeded in part. By three votes to two the transfer itself did not attract inheritance tax. All five justices agreed that the omission to draw benefits was a taxable transfer of value on these facts.
Source: Commissioners for Her Majesty’s Revenue and Customs v Parry and others [2020] UKSC 35
