Does anyone have the definitive view please on the IHT treatment of a lump sum death benefit paid under a joint life first death endowment policy to the surviving unmarried partner & policyholder?
Many thanks
Assuming that the policy was not written in trust then, on the first death death (where there are two policyholders in law they hold as joint tenants) the beneficial interest passes by survivorship to the surviving joint tenant.
The policy proceeds are accordingly paid out to the survivor (who is also the sole legal owner).
Typically, this type of policy is designed to provide funds for the survivor to help with living costs etc.
No IHT liability arises on the deceased’s estate.
Malcolm Finney
They may be joint policyholders, but it depends on the wording of the policy as to who has the beneficial ownership.
Generally, the policy proceeds are normally payable directly to the surviving joint owner and so falls into their estate for IHT purposes.
Some policies were held on a joint tenancy basis - so the share (usually 50/50) of the death benefit would fall into each policyholder’s estate and be subject to IHT on their individual estates.
1 Like
Yes I agree with Francesca
A life insurance policy is a chose in action and therefore when one owner dies the survivor automatically takes the legal title. However, like Francesca says you also need to consider the beneficial interest. Each person owns 50% of the beneficial interest. So when one dies the market value of their share is included in their IHT calculation as a “gift” to the survivor. Normally when you are dealing with a married couple this is irrelevant due to the spouse exemption but where the owners are not married there is no such exemption that can be applied so potentially there may be an IHT liability on the deceased’s estate.
Kim