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HMRC internal manual

Inheritance Tax Manual

Life Policies: policy on the deceased’s life not connected with any other transaction (except a trust): policy effected for the benefit of someone else from the start: policy contains option to surrender bonuses to the transferor

Sometimes gifted with-profits policies contain an option to surrender bonuses before the policy matures.

If the policy is not in trust, Inheritance Tax should be claimed on the death of the deceased under IHTA84/S4 (1) if (and to the extent that) the deceased could have obtained the bonuses and kept them for their own benefit. This applies even if the policy moneys themselves (and any unsurrendered bonuses) are payable under the policy to someone other than the deceased or their legal personal representatives.