PSI17.1.24 - Tax Treatment of Approved Schemes and Payments by Approved Schemes: Tax Treatment of Approved Schemes - Term Life Policies - Reference To Pension Business Not Wanted

(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)

You may occasionally come across cases where the death in service benefits under an exempt approved scheme are secured by term life policies, but the Life Office wants the premiums referred to its ordinary life business instead of to pension business. The reason is that term life policies generate very little investment income (which would be exempt from tax if arising from pension business) and the advantage gained from the pension business treatment is outweighed by a loss of tax relief on administration expenses. The Life Office can only achieve its aim if the policies fail in some way to “correspond” with the scheme rules. (If there is complete “correspondence”, reference of premiums to pension business is mandatory, not optional.). No objections should be raised in such cases.

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