I3.755 Insurance arrangements

IHT, trusts and estates

I3.755 Insurance arrangements

I3.755 Insurance arrangements

HMRC's Inheritance Tax Manual1 comments on five types of insurance arrangements.

Discounted gift trusts

Here, the settlor effects a discounted gift scheme comprising a gift into settlement with certain 'rights' being retained. The retained rights may, for instance, be a series of single premium policies maturing (usually) on successive anniversaries of the initial investment or on survival, reverting to the settlor, if he or she is alive on the maturity date, or the settlor carves out the right to receive future capital payments if he or she is alive at each prospective payment date. The gift with reservation provisions do not apply.

In the straightforward case where the settlor has retained a right to an annual income or to a reversion under arrangements, HMRC confirm that that right is not property within FA 2004, Sch 15, para 8 as the trustees hold it on bare trust for the settlor. A bare trust is not a settlement for inheritance tax purposes. The settlor is excluded from other benefits under the policy and so Sch 15 does not apply.

HMRC explain that there may be more complex cases where the settlor's retained rights or interests are themselves held on trust. But that would normally be construed as being a separate trust of those benefits in which the settlor had an interest in possession, and no charge to tax will arise under this schedule by virtue of FA 2004, Sch 15, para

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