Swiss Re has requested that the Chancellor exempt trusts with only protection assurance policies from the Relevant Property Trust (RPT) Regime.
Swiss Re technical manager Ron Wheatcroft says that this could be accomplished at almost no cost to the Exchequer and outlines individual life assurance policies in trust, group life policies, terminal illness, distributing the proceeds and addressing the growing gap as supporting factors.
Wheatcroft says: “Pure protection life assurance policy benefits are only payable upon death or disability and otherwise present no cash value, so it makes very little sense for them to be included in the RPT regime. We believe that exempting trusts where the only assets come from within these policies would be an extremely useful measure – one that would be at almost no cost to the Exchequer.”
Wheatcroft firstly states that there are other ways to ensure personal policy ownership without including them in the Regime regarding individual life assurance policies in trust, for example, using Life of Another or having a beneficiary nomination within the policy.
Furthermore the freeze of the Lifetime Allowance for pensions until 2026 will likely increase interest in excepted group life policies (EGLP) to support death benefit arrangements. There were 11,993 non-pension in force at the end of 2020, covering over 1.4 million members.
“The RPT rules pose particular difficulties for trustees of EGLPs, as the additional complexity and financial consequences may deter smaller employers from providing the simplest of protection cover for their workforce.
“Workplace life assurance cover is entirely voluntary and so, without action, a knock-on effect could be employees and their families becoming less resilient.”
Additionally Wheatcroft says that a liability can arise under RPT rules if a life assured is terminally ill on the day that any ten-year periodic charge is due.
“In such circumstances, doctors may decline to give a diagnosis meaning that, in practice, establishing a tax liability is largely a matter of chance. It’s hard to believe that the law intended to cover the deaths of people differently, simply because they have the misfortune to have been terminally-ill on a specific day, but in practice this is currently the case,” Wheatcroft says.
Moreover Wheatcroft says there may be issues if the trustees have received the proceeds but are still deciding how to distribute them.
He says: “In this instance, Trustees should be allowed the time to ensure policy benefits are distributed appropriately, rather than being constrained by a potential tax liability on a specific assessment date. Further savings could be made if the “common benefit formula requirement for all members to establish an EGLP was removed. Any possible tax avoidance is covered elsewhere in the Eligibility Conditions.”
According to research from Swiss Re, the annual cost of complying with filing returns for EGLPs is around £3m. “This assumes each trust holds three policies to comply with the common benefit formula requirement. The cost of additional specialist advice from lawyers and employee benefit consultants, incurred over a number of years, is estimated to be £40m. An exemption would be totally in the spirit of HMRC’s statement in responding to its consultation on trust tax simplification in 2014,” says Wheatcroft.
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