Treatment of transfer of funds to a personal pension

Mrs S and her husband built up a company of which she was a director. They divorced and as part of her settlement in 2000 she gave up her role in the company which granted her a pension in the form of a s 32 buyout policy (FA 1981 s 32). This would allow her to invest the fund as she chose – but any surplus would be returned to the company on her death. This was significant because her pension was overfunded.

In October 2006 within two months of her death in December aged 56 she transferred the s 32 policy to a personal pension policy. Under this she nominated her two sons as beneficiaries for the death benefit. She did not draw any benefit from the policy.

HMRC raised determinations on the basis that Mrs S’s action was a transfer of...