What conditions need to be met for a relevant life policy to be effective?

For protection policies only. This information is for financial advisers only. It mustn’t be distributed to, or relied on by, customers.

This is detailed in the Income Tax (Earnings and Pensions) Act 2003 Section 393B(4).

  • The policy must only pay a lump sum death benefit before the age of 75.
  • The benefits must be capital in nature and not deemed income.
  • The employer can’t specify under which conditions the benefits are paid. The benefits must be paid only as set out in the policy conditions.
  • The policy mustn’t be capable of having a surrender value.
  • Critical illness, total permanent disability or income protection benefits can’t be included.
  • Where terminal illness benefit is included on the policy, this benefit must only be payable while the employee is in the employment of the employer who’s paying the premiums.
  • The benefits must only be paid to an individual or a charity. Although a trust can be set up to receive the benefits, the trustees must pay these benefits to an individual or a charity.
  • The main purpose of the policy mustn’t be tax avoidance.

This information is based on our understanding of current legislation, taxation law and HM Revenue & Customs (HMRC) practice.