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HMRC internal manual

Inheritance Tax Manual

Excepted transfers and terminations - value transferred attributable to insurance linked products

Where the transaction is concerned with an insurance linked product, the question of whether or not the transfer is attributable to cash - and will qualify as an excepted transfer up to the nil rate band - will depend on the circumstances of the transaction.

We take the view that the value transferred will be attributable to cash if the transferor makes a transfer where he pays an amount in cash (or by cheque/bank transfer) and he then needs to take no further action to complete the transfer (and cannot stop any further steps required to complete the transfer from taking place). This will usually be the case when the insurance product and related trust documentation are all completed at the same time and product placed in trust from the outset. Where, however, the transferor purchases an insurance product, which he then places in trust, this is clearly a transfer of an asset other than cash and the 80% limit (IHTM06104) would apply.

Where a ‘discounted’ gift scheme is purchased, the value transferred by the transfer of value (IHTM04024) is the amount computed after the ‘discount’ has been taken into account. We have published a Technical Note explaining how we expect insurers to go about arriving at the value transferred. Where insurers follow this methodology and have fully underwritten the transferor’s life, we will usually agree the ‘discount’ and the value that has been transferred. Where this is below the relevant limit, the transfer will be an excepted transfer and no account will need to be delivered.

Where the insurers do not follow this methodology, or do not fully underwrite the transferor’s life, it is possible that the value transferred will emerge at too low a level and if that value is below the appropriate limit, it will appear that there is no need to deliver an account.

If it is subsequently discovered that too great a ‘discount’ was claimed, so that the transfer was not an excepted transfer, the liable people will be required to deliver an account within 6 months of that discovery. (IHTM06109) Where an account is late, the normal late account penalties will apply.