Legislation for relevant life plans

We’ve detailed below the legislation that governs relevant life plans.

A relevant life plan is defined in subsection 393B(4) of the Income Tax (Earnings and Pensions) Act 2003 (‘ITEPA’) as:

(a) an excepted group life policy as defined in section 480 of the Income Tax (Trading and Other Income) Act 2005,

(b) a policy of life insurance, the terms of which provide for the payment of benefits on the death of a single individual, and with respect to which: (i) condition A in section 481 of that Act would be met if paragraph (a) in that condition referred to the death, in any circumstances or except in specified circumstances, of that individual (rather than the death in any circumstances of each of the individuals insured under the policy) and if the condition did not include paragraph (b), and (ii) conditions C and D in that section and conditions A and C in section 482 of that Act are met, or

(c) a policy of life insurance that would be within paragraph (a) or (b) but for the fact that it provides for a benefit which is an excluded benefit under or by virtue of paragraph (a), (b) or (d) of subsection(3) of ITEPA s.393B.

So the conditions that need to be met if a plan is to be a relevant plan within the ‘single life’ category set out in (b) are:

• Condition A in section 481 of the Income Tax (Trading and Other Income) Act 2005 (‘ITTOIA’) – that “under the terms of the policy a sum or other benefit of a capital nature is payable or arises on the death in any circumstances of [the individual] insured under the policy who dies under an age specified in the policy that does not exceed 75.”
• Condition C in section 481 – that “the policy does not have, and is not capable of having, on any day: 
  • a surrender value that exceeds the proportion of the amount of premiums paid which, on a time apportionment, is referable to the unexpired paid-up period beginning with the day, or
  • if there is no such period, any surrender value.”
• Condition D in section 481 – that “no sums or other benefits may be paid or conferred under the policy, except as mentioned in condition A or C.” 

• Condition A in section 482 of ITTOIA – that “any sums payable or other benefits arising under the policy must (whether directly or indirectly) be paid to or for, or conferred on, or applied at the direction of:
  • an individual or charity beneficially entitled to them, or
  • a trustee or other person acting in a fiduciary capacity who will secure that the sums or other benefits are paid to or for or conferred on, or applied in favour of, an individual or charity beneficially.”
• Condition C in section 482 – that “a tax avoidance purpose is not the main purpose, or one of the main purposes, for which a person is at any time:
  • the holder, or one of the holders, of the policy, or
  • the person, or one of the persons, beneficially entitled under the policy.”

Note

The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice. Also it may not reflect the options available under a specific product which may not be as wide as legislations and regulations allow.

All references to taxation are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor.