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.Wed Oct 25 16:12:00 BST 2017
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.