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HMRC internal manual

Inheritance Tax Manual

From
HM Revenue & Customs
Updated
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Lifetime transfers: normal expenditure out of income: life policy linked with an annuity

Premiums paid by one person for a policy on their life which benefits another person may qualify for the IHTA84/S21(1) exemption. But, if the person paying the premiums had also purchased an annuity (IHTM20631), you must consider whether the policy and annuity should be treated as linked together in a back-to-back arrangement (IHTM20371).

If the policy and annuity are found to constitute a back-to-back arrangement, the gifts by way of payment of premiums on the policy are excluded from the exemption and cannot be relied on to establish the normality of other gifts.

Also, you must exclude the premiums from the calculation of income available to maintain the usual standard of living.

The Actuarial Team will decide and advise you on whether or not the exemption can be allowed in these cases.