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HMRC internal manual

Insurance Policyholder Taxation Manual

Person liable to charge: UK resident trustees

Trustees are liable for tax under the chargeable events regime, rather than the creator or settlor which is the general rule, see IPTM3220 and IPTM3250, if immediately before the chargeable event they are UK resident and any of the following apply

  • the rights under the policy or contract are held by the trustees on charitable trusts
  • the rights under the policy or contract are held by the trustees on non-charitable trusts and the person who created the trusts falls within the following ‘absent settlor’ alternatives, namely

    • is non-UK resident
    • has died, or
    • in the case of a company or foreign institution has been dissolved, wound up or has otherwise ceased to exist
  • the rights under a policy or contract made or varied on or after 9 April 2003 are held by trustees on non-charitable trusts where the settlor is not within the absent settlor alternatives but there is no individual, company or personal representative who is liable to the charge
  • the rights under the policy or contract are held as security for a debt owed by the trustees.

Trustees so liable are charged for the tax year for which the gain is assessable at

  • the basic rate of tax, if they are trustees of a charitable trust
  • the basic rate of tax on gains up to £1,000, where this hasn’t already been set against other non-savings income (see the Trusts and Estates Manual at TSEM3016a and 3018 for further guidance)
  • the rate applicable to trusts otherwise.

There is a transitional provision that applies where both the trust and the policy were in existence before 17 March 1998 and

  • at least one of its creators was an individual, and
  • one of the creators died before 17 March 1998.

In this case, provided the policy has not been varied on or after 17 March 1998 to increase benefits or extend its term, there is no charge on the trustees.

If the chargeable event arises in the tax year in which the settlor died, see IPTM3240.

Further reference and feedback IPTM1013