HMRC pension transfer guidance may change

The rules relating to pension transfers and inheritance tax could be set to change after HM Revenue & Customs (HMRC) announced that it is to review its guidance on the matter following a number of concerns raised by the Office of Tax Simplification (OTS) in a review published on July 5 2019.

One area that the OTS has earmarked for examination involves the rules relating to pension transfers made within two years of a person’s death. Such transfers can result in the deceased person’s remaining defined contribution pot being subject to 40 per cent inheritance tax unless the estate can prove to HMRC that the pension transfer was made without the intention to deliver gratuitous benefit.

A question of clarity for clients and their financial advisers

The difficulty for financial advisers when considering the current rules is that it can be difficult to predict when and under what circumstances HMRC might interpret a pension transfer as being intended to provide gratuitous benefit.

In some cases, advisers may, through fear of attracting a 40% inheritance tax bill for their client, be hesitant to recommend a pension transfer even if they believe the transaction may be suitable.

In other situations, financial advice clients may decide that consolidating their pensions into a single QROPS, SIPP or other scheme may be the better option when the ambiguity of the rules is taken into consideration.

A deterrent against sensible financial planning

While HMRC states they have pursued only a relatively small number of cases, there has been a sense among industry experts that it has done so chiefly to serve as a deterrent to those in similar circumstances and to present too greater risk in what might otherwise be construed as sensible financial planning.

One recent example is the Court of Appeal case, Her Majesty’s Revenue and Customs v Parry & Ors (also known as the Staveley Case). The case concerned the application of inheritance tax in relation to a pension transfer which was made during a time of ill-health.

The judge, overturning two earlier tribunal decisions, found in favour of HMRC, ruling that because the pension transfer had been made when the pension holder was terminally ill it should be treated as a “chargeable lifetime transfer” that had been made with the purposes of reducing the value of an estate.

It is anticipated that HMRC will publish its new guidance pending the outcome of an appeal in the Supreme Court, to be heard in 2020.

Blacktower Financial Management for expat transfer advice

Blacktower Financial Management works across Europe to help cross-border interested individuals protect, grow and manage their wealth.

One area in which we have particular expertise relates to expat pension transfers, including QROPS and SIPPs. If you would like to consider whether it is your long-term interests to make an expat pension transfer, contact us today so that we can review your pensions, assets and wealth management options.

For more information about how we may be able to help you, contact your local office today.