PSI11.2.50 - Benefits on Death in Service: Lump Sum Benefits - Directors with a Life Appointment

(This archived guidance relates to HMRC discretionary practice before the 6th April 2006. For current guidance on Registered Pension Schemes see the Registered Pension Schemes Manual)

[PN11.6]

In the mid-1970s many arrangements were set up to provide death in service benefits for directors of private companies who had life appointments. The main purpose was to benefit from the IHT exemption which flows from discretionary distribution of the lump sum (see PSI11.2.24). The attraction of these arrangements was removed by the restrictions set out in PSI11.2.39-43. It is not likely that you will come across new schemes or arrangements for lifetime directors. But if an application for approval of such a scheme is received, take care to ensure that:

1. the life appointment is genuine (obtain a copy of the service agreement or other document which confers the life appointment),
2. the scheme provides only death in service benefits (either in lump sum form or widow(er)s' or dependants' pensions),
3. there are no other schemes for the same director providing retirement benefits, and
4. if the director should leave service the rules provide for the policy to revert to the company. Alternatively, the rules can permit the policy proceeds to be used to provide benefits for the director or his/her dependants in a manner expressly to be agreed by the Board of Inland Revenue.

In relation to b. while discretionary distribution of the lump sum death benefit will be permissible if death occurs before the directors 75th birthday, the scheme rules must preclude such distribution on or after that date. Distribution of the benefit in the latter situation must be in accordance with PSI11.2.39.