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HMRC internal manual

Inheritance Tax Manual

Life Policies: life policy linked with an annuity: the current statutory position

If a policy has been taken out or varied since 26 March 1974 and an annuity was purchased then or at any earlier or later time and the benefit of the policy is vested in someone other than the person who purchased the annuity:

  • the payment of the premiums will not be eligible for normal expenditure out of income exemption (IHTM14231) IHTA84/S21 (2)

and

  • a charge will arise under IHTA84/S263 (although this might be a Potentially Exempt Transfer (IHTM14024))

unless

  • the taxpayer can show that the purchase of the annuity and the effecting of the policy were not associated operations (IHTM20375) under IHTA84/S268.

You should remember there is no time limit in S21(2), which applies to the direct or indirect payment of a premium, on a policy whenever it was effected - including dates before 27 March 1974.