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New ruling could land families of the terminally ill with inheritance tax bill

by Tracey Heath

Published on 26th November 2018

A new ruling concerning inheritance tax has dealt a blow to those who have cashed in a final salary pensions while terminally ill.Cashing in a pension

The ruling in the Court Of Appeal regards the case of Rachel Staveley, who transferred her money from one pension scheme to another in 2006 while terminally ill. A few weeks later, aged 56, she died before accessing any of the cash.

HMRC launched a case against her family, claiming that Ms Staveley knew she had a terminal condition and had deliberately not accessed the money, to prevent her family from paying inheritance tax, or IHT.

Cash in a pension can be passed on tax-free if the holder dies before they reach 75 and the money is untouched.

Ms Staveley’s family challenged the decision, arguing the transfer had been to ensure her ex-husband did not benefit.

However, HMRC rules are clear: if someone transfers their pension when they are terminally ill and they die within two years, the money will be subject to inheritance tax at the standard rate of 40%. The Court of Appeal ruled in favour of HMRC.

The decision seems particularly unfair, given the family are grieving, but the rules are clear. It also shows the importance of getting expert advice with regards pension planning, tax planning and inheritance.

For help and advice in all these areas, please get in touch with the team at Optimum.

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