Revenue And Customs v Parry & Ors (Rev 1)

For the inheritance-tax purchase exemption, the question is whether the disposition was intended to improve another person’s position gratuitously. A disposition does not lose the exemption merely because it substitutes a legally different right, but it does so where the donor intended the recipient to be better off than otherwise. The statutory concept of “transaction” includes associated operations, and an operation need not itself confer the benefit if it forms part of a scheme intended to do so. A continuing omission to take pension benefits may therefore be associated with a pension transfer. Under section 3(3) of the Inheritance Tax Act 1984, the omission may increase another person’s estate even where an administrator’s later discretionary payment intervenes; simultaneous diminution and increase are unnecessary.

Mrs Staveley transferred a section 32 pension policy to an AXA personal pension policy shortly before her death and nominated her sons to receive the death benefit. Her executors relied on the purchase exemption in section 10(1) of the Inheritance Tax Act 1984. The First-tier Tribunal treated the transfer as outside the inheritance-tax charge but held that the subsequent omission to take pension benefits was a transfer of value. The Upper Tribunal upheld the section 10 conclusion and reversed the decision on the omission, holding that the scheme administrator’s discretion broke the causal link.

HMRC appealed. The issues were whether the transfer was intended to confer a gratuitous benefit, whether the transfer and omission were associated operations, and whether the omission increased the sons’ estates for section 3(3) purposes.

1. Issue 1: purchase exemption. The appeal was allowed. Newey LJ, with Birss J agreeing, held that section 10(1) asks whether the donor intended the disposition to improve a recipient’s position gratuitously. The FTT’s findings showed that Mrs Staveley intended her sons to receive the death benefits, although she did not intend the transfer itself to improve their position. A disposition intended to give a person only what he would receive in any event, or less, is not intended to confer a gratuitous benefit in the relevant sense.
2. The transfer and the continuing omission to draw pension benefits were associated operations under section 268 of the Inheritance Tax Act 1984. An omission is an operation, and an operation need not itself confer a benefit if it forms part of, and contributes to, a scheme intended to confer one. The transfer and omission affected the same property and were linked by the common intention that the sons should receive the death benefits. The fact that the transfer was not independently intended to improve their position did not prevent it being a relevant associated operation.
3. Issue 2: omission and causation. The omission deliberately to take pension benefits diminished Mrs Staveley’s estate and increased the sons’ estates within section 3(3). The scheme administrator’s exercise of discretion in accordance with the recent nomination did not break the chain of causation. The omission was an operative cause, even if the administrator’s later payment could also be described as a cause. Section 3(3) imposes no requirement that diminution and increase occur simultaneously.
4. Lady Arden reached the same result but differed on the construction of section 10(1). She considered that the nomination conferred newly created rights and that benefit must be assessed by legal analysis without comparison with a prior gift. She also treated intention as a question of fact and emphasised the limited scope for appellate interference with factual findings under [1956] AC 14. Issue 3, concerning whether the transaction was at arm’s length, did not require determination.

• Court of Appeal (Civil Division) — appeal allowed on Issues 1 and 2; Issue 3 was not decided: [2018] EWCA Civ 2266.
• Upper Tribunal (Tax and Chancery Chamber) — upheld the First-tier Tribunal’s section 10 conclusion but allowed the executors’ appeal on the section 3(3) omission issue: [2017] UKUT 4 (TCC).
• First-tier Tribunal — treated the pension transfer as within the purchase exemption but held that the omission to take benefits was a transfer of value.