Mrs Arnold set up a discretionary trust in 1995 aged 53, and later that year took out a pension plan under which she could start drawing her pension any time between her 50th and 75th birthdays.

If she died before drawing her pension, the value of the pension pot would pass into the trust.

She died in 2003 aged 61 without having taken any pension payments from the plan.

HM Revenue & Customs (HMRC) asked for inheritance tax to be paid on the value of the pension benefits passing into the trust.

Its view was that Mrs Arnold had made a deliberate decision not to draw her pension, resulting in the value of her estate being reduced and the value of the discretionary trust being increased.

Mrs Arnold's executors appealed, saying the only reason the pension hadn't been drawn was because Mrs Arnold didn't need it.

Her executors argued that if Mrs Arnold had known about the inheritance tax charge she might have taken advice to avoid it.

The judge dismissed the executors' appeal, agreeing with HMRC that Mrs Arnold had made a conscious decision not to take her pension benefits when she reached 60. 

Inheritance tax was therefore due on the amount passing to the trust.

The question about whether pension benefits have been taken is asked by HMRC on every application to the Probate Registry for a Grant of Representation.

DM Fryer, TJ Marsh and J Arnold (personal representatives of P Arnold deceased) as reported in Taxation: http://www.taxation.co.uk/taxation/articles/2010/06/04/20507/nature-omission

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