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HMRC internal manual

Inheritance Tax Manual

Life Policies: Potentially Exempt Transfer treatment for renewal premiums: payment of premiums for policies in accumulation and maintenance or trusts for disabled persons

You may need to consider whether the payment of premiums for policies in Accumulation and Maintenance or Disabled Trusts qualifies for Potentially Exempt Transfers (PET) treatment.

IHTA84/S3A (3) provided that Potentially Exempt Transfer (PET) (IHTM14024) treatment for such premium payments before 22 March 2006 is only available to the extent that the value transferred is attributable to property which, by virtue of the transfer, becomes settled property (IHTM16000) to which IHTA84/S71 or IHTA84/S89 applies. So, if a transferor put a policy into an accumulation and maintenance trust or a trust for a disabled personand then paid the renewal premiums direct to the insurance company before 22 March 2006, PET treatment will not be available. This is because the premiums do not become settled property. That is still the position for disabled trusts where premiums are paid in this way on or after 22 March 2006, S3A (3A).

However, if the transferor made payments to the trustees before 22 March 2006 (and also on or after that date in the case of disabled trusts) and the trustees used those payments to pay the renewal premiums PET treatment is available - even if payment by the transferor was by a cheque which the trustees endorsed in favour of the insurance company. Neither the associated operations provisions nor the principle in Ramsey/Furniss should be invoked to deny PET treatment in these cases.

S71 cannot apply to property settled on or after 22 March 2006 (IHTA84/S71 (1A)) except in specific circumstances where rights under a contract of life insurance were settled on accumulation and maintenance trusts (IHTM42807) before 22 March 2006, but premiums continue to be paid after that date and further rights become comprised in the settlement as a result. In those circumstances, the payment of premiums on or after 22 March 2006 will continue to be treated as potentially exempt transfers if they are made by an individual, S46B(5) (IHTM20202), whether the payment is made direct to the insurance company or to the trustees in the first place, who use it to pay the premiums. Where the payment is made to the trustees who then pay the premiums, we can agree that the two payments could be regarded as together comprising a disposition by the transferor by associated operations (IHTM14821) which is to be treated as a transfer of value under S3.