IPTM7040 - Exceptions: group life policies: conditions about policies held on trust and an anti-avoidance condition: ITTOIA05/S482
Group life policies held on trust
(ITTOIA05/S482(2)(b))
The legislation recognises that some policies are held on trust and that rather than the death benefits being paid directly to the family, dependants and the like of the deceased, the benefits are paid to the trustees who pass them to the beneficiaries as they see appropriate. This is permitted provided the trustees secure that the only beneficial recipients of the death benefits are individuals or charities. This is subject to the group membership condition described in IPTM7035, which extends to the right of any person to be considered by trustees in their exercise of a discretion
Trustees’ declaration of powers and insurer’s reporting obligations
These conditions are ongoing tests and whether they are met are questions of fact. It is neither necessary nor sufficient that the trustees declare that they will only distribute death benefits to beneficiaries in accordance with the conditions. For instance, in the unlikely event that, notwithstanding such a declaration, the trustees paid benefits to a person who was not an individual or a charity then the policy would cease to be an excepted group life policy and would come back within the chargeable event gain rules.
Such a declaration might, however, be helpful in ensuring that the trustees are aware of the restrictions on the exercise of their powers if the policy is to remain excepted. It might also be helpful for the insurer who needs to know whether the policy is excepted for the purposes of determining whether they need to issue chargeable event certificates.
An insurer would be entitled to assume that the trustees will ensure that they comply with the conditions when distributing benefits paid under the policy unless it becomes aware of information to the contrary.
Children’s trusts
Where the trustees of a trust holding a group life policy apply the death benefits to another trust for the benefit of the deceased’s children then the policy can still be an excepted group life policy. This is because the trustees acting for the children will ensure that the benefits under the policy, which have been paid into the children’s trust by the trustees of the trust holding the policy, are paid or applied in favour of the children so the ultimate beneficiaries are still individuals.
Anti-avoidance condition
(ITTOIA05/S482(5))
The final condition that needs to be met is that tax avoidance is not the main purpose, or one of the main purposes, for any of the holders of the policy or any of the persons beneficially entitled under the policy.
A tax avoidance purpose means a purpose of securing a tax advantage for the holder of the policy or any other person. Tax advantage has the meaning given by CTA10/S1139, and apples to the conditions at ITTOIA05/S482 by virtue of ITTOIA05/S482(7).