Registration of Trusts - Life policy plan.

Life policy trust - what does 'liable to UK tax' mean?

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I have a client with a Personal Investment Plan that is a life policy written in trust. I am no expert on trusts.

These are covered by the HMRC guidance as "Trusts that do not need to be registered unless they are liable to pay UK tax".

The PIP features state: "We have to pay tax on the income and capital gains from the assets the funds invest in, and this is reflected in the value of the funds." So presumably the income the plan receives is net of UK tax, but is this in itself enough to make it 'liable to UK tax' and therefore registrable?

Thanks for any guidance.

 

Replies (5)

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By richard thomas
15th Sep 2022 15:10

TRSM25030 should answer your question. But in case it doesn’t, then the answer is “no”.

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Replying to richard thomas:
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By jwgrogan
15th Sep 2022 17:59

Thanks, and to be explicit, I guess the reason is that the plan doesn't actually receive taxable income, it just holds units that change in value, and the liability to tax arises on the companies in the funds that the plan invests in, rather than on the trustees themselves.

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Replying to jwgrogan:
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By richard thomas
15th Sep 2022 21:14

Yes. The question is whether the trustees have a liability to pay tax, not the life insurance company which issued the policy. They don't have any liability to income tax unless (a) there is a chargeable event giving rise to a liability to tax and (b) the trustees (and not the settlor) are liable. This is an unusual case, and will usually arise if the life company is slow paying out on the death of the settlor and so pays interest.

But as trustees of an express trust don't the trustees have an obligation to register anyway under reg 45ZA? I certainly thought I did as the trustee of a trust whose only asset was a life insurance policy with a surrender value.

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Replying to richard thomas:
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By jwgrogan
16th Sep 2022 09:50

TRSM23030:
"Trusts of life policies are, subject to certain conditions, excluded from registration as express trusts during the lifetime of the person(s) assured (Sch3A(4)(1) of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017)...

The general position is that trusts holding policies with surrender values can remain excluded from registration under Sch3A(4) until such time as the policy is actually surrendered. If a policy is surrendered and the cash sum is retained in the trust, the trust would be required to register from that point."

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Replying to jwgrogan:
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By richard thomas
16th Sep 2022 15:28

See the thread "Registering Trusts Holding Life Insurance Bonds ?" started by Penelope Pitstop on 30 August 2022, and in particular my post of 13:45 that day. What is said in TRSM 23030 is nonsense, and could be changed at any time.

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