This is because HMRC generally only treat a transfer of value arising for IHT purposes in these circumstances and to that effect, all transfers and contributions made to a scheme within two years of death have to be included on the IHT 409 form.
The pension freedoms will have brought this issue to more people recently, with the change to benefit options in 2015 encouraging those that may not have considered it before to move to a more flexible scheme.
This could well be forced upon them if their existing scheme doesn’t offer the benefits they want in their retirement.
In addition, the cap on exit fees and the reduction of many to zero will now encourage more shopping around by those that may well have felt trapped before.
It is good to see then that the Upper Taxation Tribunal has approved the decision of the First-Tier Tribunal in the case of Mrs Staveley deceased, ((2017) UKUT 0004 (TCC)).
The case, although not conclusive, for all of these transfers found that there wasn’t an intention to confer a gratuitous benefit and that it wasn’t a transfer of value for the purposes of s3 IHTA 1984.
This was for various reasons but mainly because the transfer itself was undertaken primarily for the purpose of avoiding her ex-husband getting any funds returned to his company on her death.
This ruling shows that where the purpose of the transfer isn’t for IHT planning purposes then there shouldn’t be an IHT charge.
This could be of considerable importance to possible future transfers for those in ill health who may well feel trapped by the warning that their advisers have to give them.
What we wait for is to see if there is a further appeal and if HMRC update their guidance on this before we can feel comfortable in doing these types of transfers.
There are many other reasons to transfer, such as plan charges and increased flexibility as well as options around investments.
What is clear, at least in the short term, is that this is a case worth fighting for those already impacted and details of reasons for the transfer need to be well documented in order to back up any claims that it was for IHT planning.
As with all things pensions, the lack of equality across the different types of schemes when it comes to retirement and death benefits means we will always see transfers that occur at inopportune times that HMRC may challenge unnecessarily.
Claire Trott, Head of Pensions Strategy, Technical Connection.