HMRC has provided a welcome update in relation to life policies and the requirement to register on the Trust Registration Service (TRS).
Placing life policies into trust can be beneficial in estate and inheritance planning and can also ensure faster distribution of funds to beneficiaries following death.
Trusts of life policies are, subject to certain conditions, excluded from having to register with the TRS. These conditions are that the policy must only pay out:
• On the death, terminal or critical illness or permanent disablement of the person assured, or
• To meet the cost of healthcare services provided to the person assured
The exclusions can apply to trusts holding multiple policies so long as each policy within the trust meets the conditions above. It is also irrelevant whether a policy is a whole of life policy or a term policy for the purposes of the exclusion.
Similarly, where a trust is holding the benefits received following the death of the person assured and less than two years have passed since the date of death, that trust will also be excluded.
Some life policies can acquire a surrender value and initial HMRC guidance did not make clear how these policies would be treated, particularly as such policies are similar to an investment product, but HMRC has now confirmed that the above exclusions also apply in this instance. This means the trustees of such policies can breathe a sigh of relief.
We expect HMRC to provide more clarification to aspects of the guidance and we will continue to monitor any future updates.