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HMRC internal manual

Insurance Policyholder Taxation Manual

Exceptions: group life policies: conditions about policies held on trust and an anti-avoidance condition

Group life policies held on trust

The legislation recognises that some policies are held on trust and that rather thanthe death benefits being paid directly to the family, dependants and the like of thedeceased, the benefits are paid to the trustees who pass them to the beneficiaries as theysee appropriate. This is permitted provided the trustees secure that the only beneficialrecipients of the death benefits are individuals or charities. This is subject to thegroup membership condition described in IPTM7035, which extendsto 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. Itis neither necessary nor sufficient that the trustees declare that they will onlydistribute death benefits to beneficiaries in accordance with the conditions. Forinstance, in the unlikely event that, notwithstanding such a declaration, the trusteespaid benefits to a person who was not an individual or a charity then the policy wouldcease to be an excepted group life policy and would come back within the chargeable eventgain rules.

Such a declaration might, however, be helpful in ensuring that the trustees are aware ofthe restrictions on the exercise of their powers needed if the policy is to remainexcepted. It might also be helpful for the insurer who needs to know whether the policy isexcepted for the purposes of determining whether they need to issue chargeable eventcertificates.

An insurer would be entitled to assume that the trustees will ensure that they comply withthe conditions when distributing benefits paid under the policy unless it becomes aware ofinformation to the contrary.

Children’s trusts

Where the trustees of a trust holding a group life policy apply the death benefits toanother trust for the benefit of the deceased’s children then the policy can still bean excepted group life policy. This is because the trustees acting for the children willensure that the benefits under the policy, which have been paid into the children’strust by the trustees of the trust holding the policy, are paid or applied in favour ofthe children so the ultimate beneficiaries are still individuals.

Anti-avoidance condition

The final condition that needs to be met is that tax avoidance is not the main purpose,or a main purpose, for any of the holders of the policy or any of the persons beneficiallyentitled under the policy.

Further reference and feedback IPTM1013