IPTM3240 - Chargeable events: person liable to charge: death cases
Policies and contracts not held on trust
Cases where deceased is liable
In most cases, the life insured under a life insurance policy or life annuity contract is that of the beneficial owner of the rights under the policy or contract within the chargeable event regime. Those rights are then extinguished by the death of the insured person and any chargeable event gain is that of the deceased person, not that of the personal representatives as such, although they administer the affairs of the deceased person.
Cases where personal representatives are liable
Where the insured person is different from the beneficial owner, or the policy is a capital redemption policy, the policy will continue to run following the death of the beneficial owner and it will pass into the estate of the deceased.
Any chargeable event gain arising on the continuing policy or contract is treated as income of the estate and the personal representatives will be liable to tax on those gains.
Gains which, if attributed to an individual, would not be treated as though basic rate tax had been paid, are charged at basic rate in the hands of the personal representatives. Contracts that may give rise to such gains are considered at IPTM3810.
Policies and contracts held on trust
The general rules relating to policies held on trust are described in IPTM3250. Where a policy is held on trust, the settlor of the trust will normally be chargeable if still available to charge. A settlor who dies may in some cases be chargeable on an event occurring after death, for example where the policy held by trustees is on the life of someone other than the settlor and continues following the settlor’s death. When a chargeable event occurs after a UK resident settlor’s death, but before the end of the tax year, the gain will be chargeable as part of the total income of the deceased settlor for that tax year. Usually that will result in less tax payable but if, exceptionally, it is suggested that the trustees should be charged, HMRC offices should ask CT&VAT (Technical) Insurance Group to review the circumstances see the ‘Technical Help’ link on left hand bar.
Where the gain arises on an event after the end of the tax year in which the settlor died, the trustees will be taxable on the gain, subject to the transitional provision for policies in existence before 17 March 1998 which is described at IPTM3230.
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