IHTM17108 | Pensions: other provisions: the Parry case

In the case of HMRC v Parry and others [2020] UKSC 35 (‘Parry’), the deceased, Mrs Staveley, had a pension in the form of a section 32 policy derived from an occupational pension from the company she had set up with her ex-husband. Shortly before she died Mrs Staveley transferred her section 32 policy into a personal pension plan (‘PPP’). She died six weeks later without taking her pension. The death benefit under the PPP was paid at the discretion of the PPP scheme administrators to Mrs Staveley’s sons. As the death benefits under the PPP were paid at the scheme administrators’ discretion they did not form part of Mrs Staveley’s estate on her death. If Mrs Staveley had not transferred her section 32 policy the death benefits would have formed part of her estate and would have been subject to IHT on her death.

HMRC argued that Mrs Staveley made two transfers in connection with her pensions. A transfer under IHTA84/S3(1) on the transfer from the section 32 policy to the PPP and a disposition under IHTA84/S3(3) on the omission to exercise her right to draw the pension benefits from the PPP.

The Supreme Court found, on a majority decision, that the transfer from the section 32 policy to the PPP was protected by IHTA84/S10. Although the taxpayers were successful in appealing against the IHTA84/S3(1) transfer and that IHTA84/S10 applied, this was due to the facts of the case, specifically a combination of the acrimonious divorce and the old pension rules which meant some of the pension fund might have returned some value to Mrs Staveley’s ex-husband.

The court unanimously agreed with HMRC that IHTA84/S3(3) applied in respect of Mrs Staveley’s omission to exercise her right to draw the pension benefits from the PPP.

The judgment provides support for HMRC’s approach to pension transfers and provides useful guidance in applying IHTA84/S3(3) and IHTA84/S10(3).

The judgment included the following regarding IHTA84/S3(3)

• There is no requirement that the reduction in value of the first estate must be followed immediately by an increase in the estate of another person. All that is required is that one results from the other, but they do not need to occur at precisely the same time.

• There is no requirement to be able to identify the person whose estate will be increased by the omission when the omission is made. IHTA84/S3(3) requires only that “another person’s estate” is increased, so it is enough that some other person’s estate will be increased even if that other person is not immediately identified.

• It is not appropriate to take a narrow and legalistic approach to IHTA84/S3(3). The scheme administrators’ discretion over who was to receive the death benefits did not break the chain of causation between Mrs Staveley’s omission and the increase in her sons’ estates.

The judgment included the following regarding IHTA84/S10(3)

• Where a disposition is made by associated operations, IHTA84/S10 will not apply if one of the steps in the overall scheme is made with gratuitous intent. This reinforces HMRC’s interpretation of the decision in Macpherson (IHTM14829).