The appellants were the three executors of Mrs Staveley’s estate, two of whom were also her sons. Mrs Staveley held a pension scheme on which she had decided never to draw, with the aim of maximising the death benefit that would accrue to her sons under the scheme. Under the terms of her will, her estate was to be held on trust for her two sons in equal shares. Shortly prior to her death Mrs Staveley had transferred funds from her existing pension scheme into a new personal pension plan (PPP). The motives out of which she had done so were contested between the parties, the appellants alleging that her principal motivation had been to eliminate the possibility that her ex-husband or a company with which he was associated would receive some benefit from the pension upon her death, while the respondents maintained that among her intentions was a desire to benefit her sons, and possibly to mitigate the inheritance tax (IHT) burden on her estate. Upon transferring her pension to the PPP, Mrs Staveley had nominated her two sons as the beneficiaries of any death benefit arising under it, which nomination was, pursuant to the terms of the PPP, subject to the discretion of the pension scheme administrator.
Following Mrs Staveley’s death, the death benefit was paid to Mrs Staveley’s sons, in accordance with her nomination. HMRC demanded payment of inheritance tax on both the transfer from the original pension scheme into the PPP and on her omission to draw pension benefits during her life, both of which were said to constitute lifetime transfers of value within the meaning of s3 Inheritance Tax Act 1984 (IHTA).
The appellants appealed against HMRC’s determination to the First-tier Tribunal (FTT). The FTT found that the transfer into the PPP was motivated solely by eliminating the possibility of benefit to her ex-husband, and hence was not a transfer of value since it fell within the exemption provided by s10(1) IHTA, as a transfer not intended to confer gratuitous benefit on anyone. As to the omission to draw benefits, the FTT dismissed the appeal, holding that the omission had increased the value of the sons’ estates and was taxable pursuant to s3(3) IHTA (which covers omissions which decrease the value of one’s own estate and increase that of another).
Both sides appealed to the Upper Tribunal (Tax and Chancery Chamber), which affirmed the exemption of the transfer to the PPP on the basis that it fell within s10(1) IHTA, but reversed the FTT’s finding as to the omission to draw lifetime pension benefits. This was on the basis that s3(3) IHTA was inapplicable, the estates of the sons having been increased not by Mrs Staveley’s omission to draw lifetime pension benefits, but rather by the exercise of the discretion of the pension scheme administrator (albeit, in that it was exercised in accordance with her nomination).
On appeal to the Court of Appeal, the court held that although the transfer to the PPP was not on its own a transfer of value, that taken together with Mrs Staveley’s omission to draw lifetime pension benefits formed a ‘series of transactions and associated operations’ with the consequence that the transfer to the PPP was not protected by the s10 IHTA exemption. Moreover the Court of Appeal held that Mrs Staveley’s omission to draw lifetime benefits had increased her sons’ estates notwithstanding the discretion of the pension scheme administrator, which was said not to break the chain of causation for these purposes. Therefore s3(3) IHTA did apply to that omission. In consequence, both the transfer to the PPP and the omission were subject to tax.
The issues on appeal to the Supreme Court were:
- 1) Was the transfer of the funds to the PPP on its own a transfer of value, or else exempt under s10 IHTA, as a transfer not intended to confer gratuitous benefit on anyone?
- 2) Taking the transfer to the PPP together with Mrs Staveley’s omission to draw lifetime pension benefits, had there been a ‘series of transactions… and associated operations’ intended to, as a scheme, confer gratuitous benefit such that the exemption under s10 IHTA was not available?
- 3) Was the causal connection between Mrs Staveley’s omission to draw lifetime pension benefits and the eventual increase in the value of the estates of her sons sufficient to engage s3(3) IHTA?
The transfer of funds into the PPP did not, taken alone, constitute a transfer of value since it fell within the exemption of s10 IHTA. The question was whether the disponor was intending, by the overall effect of the disposition, to put the recipients in a better position that that which they would otherwise have been in. It was not sufficient that the disponor had intended to engage in a transaction which as a matter of fact created new legal rights conferring a benefit on a recipient. Moreover, although the question of whether the disposition created new legal rights for the recipient would be a factor informing the analysis, it would not be decisive. Attention should be paid to the practical reality of the situation, rather than solely to a legalistic analysis of how the position of the recipients had changed. In this case, since the sons were set to receive the death benefit in any event pursuant to the terms of the will, no benefit was in practice received by the sons by the transfer of the funds to the PPP. In light of that it would have been surprising if one could conclude that it had not been shown that there was no intention to confer a benefit gratuitously. No such benefit had been intended and the transfer to the PPP therefore fell within the s10 IHTA exemption.
Moreover the transfer into the PPP and the omission to draw lifetime benefits from the pension were not linked in a scheme intended to confer gratuitous benefit. The omission had been decided upon long prior to the transfer, and the sons could have benefitted from the omission even without any move of funds into the PPP. The transfer was not relevantly associated with the omission since the transfer was not part of a scheme to confer benefit on the sons but was rather simply intended to prevent Mrs Staveley’s ex-husband from benefitting. This distinguished the present case from the case of Macpherson (which had related to an effectively identical provision of the Finance Act 1975) since in that case two acts held to constitute a scheme had been linked by a common intention, and the disponors would not have taken one of the acts without first having taken the other.
The omission to draw lifetime pension benefits did fall within s3(3) IHTA notwithstanding the genuine discretion available to the pension scheme administrator. The omission was the operative cause of the increase in the sons’ estates. To say that the exercise of the discretion of the administrator broke the chain of causation would be a narrow and legalistic approach. There was no basis for importing into s3(3) IHTA a requirement that the link between the decrease in the disponor’s estate and the increase in the recipient’s be immediate either temporally or causally. This conclusion was reinforced by the fact that the omission had created a death benefit which it was inevitable someone would receive, and s3(3) IHTA would have been engaged by the omission no matter how the administrator’s discretion had been exercised, the subsection not being concerned with the identity of the person whose estate is increased.JUDGMENT LADY BLACK: (with whom Lord Reed and Lord Kitchin agree)  In December 2006, Mrs Staveley died. Shortly before her death, she had transferred funds from her existing pension scheme into a personal pension plan (‘PPP’). She did not take any pension benefits at all during her life and, in those circumstances, a death …