Value of life policies for RPT 10 year anniversary charges

Trusts Discussion
1

Please could I ask for views on the following. I have always understood that the value of a life policy is the greater of its;

  • open market value (usually surrender value but could be closer sum assured if life assured in poor health);or
  • Premiums paid less any sum received under the policy before the transfer

This understanding is based on the provisions of the IHTA 1984, S160 and 167.

However I have recently seen a post on this forum which caused me to look closer at S167 which under 167(b) has 2 exceptions, one being a transfer on death and and the other being ‘any other transfer of value which does not result in the policy or contract ceasing to be part of the transferors estate.

I am now thinking that as the valuation of a life policy for the purpose of the TYA is a fictional transfer that does not cease to be part of anyone’s estate, the premiums should not be taken in to account and the only factor to consider should be the open market value.

This could make a difference to the number of whole of life policies recommended to keep any TYA value within NRB where a life assured is young and the premiums are high. Any thoughts on this would be much appreciated.

2

I agree. S167 does not impose the premiums paid valuation basis at a TYA charge. Note that the section also excludes most term assurance policies. IHTM20000 is instructive of HMRC’s views in general on life policies and 20241-4 specifically.

Jack Harper

3

Thank you Jack, much appreciated, and yes I believe term assurances being excluded is very much recognised by the insurance industry but my concern was that everything I’ve seen from providers of WOL takes premiums into account when looking at potential ten year valuation/charges. Thanks again.