The legislation on single premium policies (including stuff still contained in ICTA 1988!) is to say the least difficult to understand. My view is as follows:
\A, following the assignment of the bond, became the beneficial owner with B being the life assured under the bond ie beneficial owner of the bond is not the life insured. Any chargeable event gain certificate is issued to the “appropriate policyholder” [ICTA 1988 s552(1) and (10)(b)], in this case that would seem to be A’s PRs (the event being the surrender).
On A’s death, the bond would pass to A’s PRs and if not surrendered would become settled on the DT. Any surrender would then be by the trustees.
Any trust set up in a will is validly constituted from the date of death and it may be that the PRs may also be trustees in which case it becomes necessary to ascertain whether the surrender is that of the PRs qua PRs or PRs acting as trustees.
It may therefore be that the PRs surrendered the bond qua PRs (ie during the administration period) giving rise to a chargeable event gain with any income being that of the estate and income tax thereon being a liability of the PRs. If the bond is a UK bond no income tax charge arises on the PRs. On distribution of the proceeds arising from the surrender to the trustees the latter are then liable on the income/proceeds with an offsetting 20% basic rate tax credit.
Alternatively, the PRs qua trustees could surrender the bond. The surrender in this case would be by the trustees (not PRs). However, the chargeable event gain would then be subject to income tax on either the trustees or A (as pre death income) depending upon whether the surrender was in a tax year after the tax year of A’s death or in the same tax year respectively.
Malcolm Finney