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HMRC internal manual

Inheritance Tax Manual

HM Revenue & Customs
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Lifetime transfers: associated operations: insurance policies

There are special rules for transfers involving a policy of life insurance effected in conjunction with the purchase of an annuity on the life of the assured (IHTM20081). In this situation:

  • you can treat a transfer of value as arising when the benefit of the life insurance policy is given to a third party (IHTA84/S263).
  • the exemption for ‘normal expenditure out of income’ is not available for payment of premiums under the life insurance policy IHTA84/S21 (2) (IHTM14235).

These rules do not apply if it is shown that effecting of the policy and purchasing the annuity are not associated operations. You can find more detailed consideration of these arrangements in the policies (IHTM20371) section of the manual.