The Court of Appeal has ruled that Inheritance Tax (IHT) was found to be payable on a pension which was transferred by a divorced and terminally ill woman to her sons, in order to prevent her ex-husband from receiving any of it.

The Commissioners for Her Majesty's Revenue and Customs v Parry and Others [2018] EWCA Civ 2266

Before they divorced, Mrs Staveley and her husband had successfully built up a company, Morayford Ltd. She was a director of it. As part of a settlement for the divorce, the company granted her a pension in the form known as a "section 32 buyout policy". These were used to transfer pension benefits built up in a workplace pension to an individual policy, usually after the worker had left the employer’s service. Mrs Staveley then became terminally ill aged only 56 years.

Just two months before her death in December 2006, she transferred her pension from the section 32 policy to a personal pension policy ("PPP"), issued by AXA. Under the PPP, Mrs Staveley nominated her two sons as her beneficiaries in relation to the death benefit, as she wanted them to each receive 50% on her death. At all times they were residuary beneficiaries under the terms of her will, which was dated 31 March 2005.

Mrs Staveley did not take any retirement benefits at all, which mean that at the date of her death the whole of her pension fund was uncrystallised. Therefore, if the purchase exemption applied, the sons would receive the death benefit free of IHT.

If Mrs Staveley's pension had remained in the section 32 policy then on her death, a lump sum would have been payable to her estate and chargeable to IHT. The standard IHT rate is 40%. The terms of the policy also meant a substantial part of the fund might revert to the company for the benefit of her ex-husband.

When HMRC took this to court, the first major finding by the First Tier Tribunal was that Mrs Staveley's sole motive for the transfer was to avoid the possibility of any part of her pension funds reverting to the company, and thus to her former husband.

HMRC on the other hand suggested she had a dual motivation, and that her second intent was to ensure the death benefits passed to her sons free of IHT.

In 2017, the First Tier Tribunal rejected HMRC's case and that decision was upheld by the Upper Tier Tribunal. However, the Court of Appeal unanimously decided in favour of HMRC, that the pension fund is subject to IHT, albeit the judges all based their decisions upon different reasoning.

At Myerson, our family law solicitors understand how important it is to receive accurate advice from an experienced solicitor in order to avoid losing out on your financial entitlement to a pension. We have an unrivalled reputation in south Manchester in advising clients in complex financial cases for business owners, company directors, international entrepreneurs and professionals.

If you require advice on divorce please contact one of our family law solicitors on 0161 941 4000 or email us at