IHT treatment of a term assurance policy trust

A takes out a 13 year term assurance policy for £1m in year 1, assigns it to a discretionary trust in year 5 and dies in year 13. He continues paying the premiums direct to the insurance company and was in good health when he assigned the policy. s.167
IHTA does not apply, ie no need to value the policy on the basis of premiums paid. £1m is paid to the trustees, 2 years before the first 10 year charge.

A had made some lifetime gifts chargeable on his death after assigning the policy, but none before.

If the £1m is appointed out before the 10 year charge, is it agreed that as the term assurance policy would have had a nil or low value in year 5, there will be no proportionate charge to IHT?

Is it also agreed that as the premiums were paid direct to the insurance company, not to the trustees for them to pay, they will not be treated as “additions” to the Trust, thereby bringing the chargeable lifetime gifts made after the Trust into the Trust’s
aggregable total, so making the appointment chargeable to IHT, as they exceeded A’s nil rate band?

Simon Northcott

I agree with your analysis.

The payment of premiums directly to the insurance company will not constitute “added property” whereas if the settlor adds funds to the trust to enable the trustees to pay the premiums, added property will arise. Typically, premium payments are exempt falling in the annual exemption or normal expenditure out of income exemption.

Malcolm Finney