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HMRC internal manual

Insurance Policyholder Taxation Manual

Scope: group life policies: tax legislation

Group life policies and the chargeable event rules

The tax guidance which follows in this and subsequent paragraphs assumes that,contractually, the policy is a group policy.

Although group life cover can often be provided under an approved pension scheme, thereare many circumstances where that is not possible. Before FA03, such policies fell withinthe chargeable event rules, potentially giving rise to taxable gains. However, FA03introduced an exclusion from the chargeable event rules for group life policies which onlyprovide death benefits, provided they meet certain other conditions. The detailedconditions which need to be met for a policy to be an ‘excepted group lifepolicy’ are explained in IPTM7025 to IPTM7050. Group lifepolicies which insure individuals up to the age of 75 and only provide death benefits forthe dependants of that person will now not, provided the conditions are met in full, giverise to tax charges.

If a group life policy does not meet the conditions to be an excepted group life policythen it is within the chargeable event rules, even if it provides death cover only. Theonly exception to this is if the policy is taken out of the chargeable event rules by anyother provision, which is only likely to be the case if the policy was issued inconnection with an approved pension scheme - see IPTM7060.

If a group life policy is within the chargeable event rules then it is possible forchargeable event gains to arise on the second and subsequent deaths of individuals insuredunder the policy and these gains will need to be reported by insurers in the normal way. IPTM7545 explains how such gains might arise.

Definition of a group life policy for tax purposes

A ’group life policy’ is defined in the tax legislation as a life insurancepolicy whose terms provide for the payments of benefits on the death of more than oneindividual and which pays benefits on the death of each of those individuals. So, forinstance, a policy which insures the lives of two individuals but only pays benefits onthe death of the last of those individuals to die would not be a group life policy.

If a policy starts out as providing under its terms that more than one individual isinsured then it will remain a group life policy even if the number of individuals covereddwindles to one. This might be because the other individuals previously insured have died,left the group or otherwise ceased to be eligible for cover, for instance because theyhave reached a certain age. If it started out as meeting the conditions to be an exceptedgroup life policy and the conditions continue to be met then it will remain an exceptedgroup life policy.

However, adding a group of lives to a policy which previously covered only a single lifewould not mean that the policy could be treated retrospectively as a group life policy. Itis likely that the adding of the lives would be a fundamental reconstruction of the singlelife policy bringing a new group life policy into existence at that time. This new policymay be an excepted group life policy but it would have to be tested on its own termsagainst the conditions.

Further reference and feedback IPTM1013