A job to die for?

It has long been the practice for employees with ‘death in service’ life assurance policies maintained by their employer to ‘nominate’ the people they wish to receive the funds on their death. Once a nomination is in place, any benefit paid on death does not form part of the employee’s estate for Inheritance Tax (‘IHT’) purposes.

However, in a recent Special Commissioners case it was decided that the proceeds of a US death in service policy form part of the employee’s estate for IHT purposes (the employee was UK domiciled).

The Inland Revenue’s decision turned on the employee’s power under the policy to ‘designate’ additional beneficiaries and decide who gets what right up until his death. It was this unfettered discretion that exposed the policy proceeds to IHT at 40%.

This decision not only highlights the Importance of completing ‘nomination’ forms but also the need to check carefully the type of policy in place, particularly where the cover is provided under a non-UK policy maintained by a foreign employer.

If you would like to discuss what you need to do to ensure the proceeds of your life assurance policies do not suffer IHT then please contact:

Sarah Albury
Tel +44 (0)20 7440 7042
sarah.albury@mishcon.com