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HMRC internal manual

Inheritance Tax Manual

Equitable Life Compensation Payments

The Equitable Life (Payments) Act 2010 governs the payment of compensation to investors who lost money, either their pension or other investments, following the collapse of Equitable Life. S.1(3) of the Act gives the Treasury power to make regulations governing the taxation of compensation payments. The Taxation of Equitable Life (Payments) Order SI2011/1502 has been made and provides for the following treatment of the payments made under the Act to investors.

Article 5(1)(a) of the order provides that

  • Where the payment is made to the estate of someone who has died before the payment has been made, it is ignored for all purposes of the IHTA84. So, where personal representatives receive such a payment, there is no need for them to report the payment to HMRC.
  • Where the payment is made to someone who is still alive, the money will form part of their estate and be subject to Inheritance Tax in the normal way when disposed of either during their lifetime or on death.

Article 5(1)(b) makes similar provision where a payment is made to the trustees of a relevant property trust. The payment is ignored for the purposes of any ten-year charges that have already arisen and trustees do not need to report the receipt of the payment to HMRC. But once the payment is received, it forms part of the trust assets and will be subject to the normal relevant property trust charges.