View more on these topics

Bonus of contention

Last week, I started to look at the income tax and National Insurance implications when a company effects a policy of life insurance on the life of an employee or director and, sometime later, decides to assign that policy to the employee or director.

This is perhaps a relatively infrequently encountered scenario but is not one that never occurs and is certainly one where there appears to have been some relatively long-standing uncertainty and misunderstanding.

The policy in question would be one established to provide pure protection for the company during the working life of the life assured or, perhaps less likely, to provide investment or even a mixture of the two.

Having said that, some time ago, National Insurance avoidance was the objective when a company effected (usually) a single-premium life insurance policy (bond) and then assigned the policy as a non-cash benefit to the employee as a bonus alternative that was free of National Insurance contributions.

Specific anti-avoidance regulations were introduced to prevent this perceived abuse applying (among other occasions) where there was the conferment of a beneficial interest in a policy of life insurance. Subsequent variations on the National Insurance avoidance theme with life policies included the effecting of a (usually single-premium) policy by an employee or director for his or her own benefit – usually for a relatively small sum – with the subsequent payment of a substantial top-up premium by the employer.

In this way, it was argued, the employer avoided the conferment of a beneficial interest within the anti-avoidance regulations. It is understood that it is the Inland Revenue view, however, that this constitutes a benefit subject to tax and National Insurance contributions under the PAYE system as the benefit conferred by the employer is cash as this is the form in which the payment for the policy is made by the employer.

This position seems to have been further clarified through section 66 of the Finance Act 1998, which provides that PAYE applies when assets are enhanced by expenditure made by the employer.

Be all of that as it may, we had occasion recently to seek the guidance of the Inland Revenue on the value that is taken into account for tax (and National Insurance) purposes when a company assigns a policy of life insurance (protection or investment) to an employee or director. I will discuss the case further next week.

Recommended

Investment update

Rothschild Asset Man-agement is in talks to buy the £20m fund of funds business from IFA network Misys. The deal will take RAM&#39s Fof assets from £99m to £119m, consolidating its position as the biggest retail multi-manager group in the UK. RAM says it is likely to merge the three funds into its three Five […]

Britain in need of saving, says Midshires&#39 poll

Only one in 10 people in Britain are making additional savings to finance their retirement outside of a pension, according to Birmingham Midshires.Its Saving Britain campaign, which aims to boost awareness of savings and investment, found that only 12 per cent of people are currently setting aside extra cash to bolster their retirement income.Its survey […]

Family tickles the fancy of investors

Family Assurance is using children&#39s cartoon favourites the Mr Men to promote its tax-free junior bond.The move follows the society reaching an agreement with entertainment licensing agency, the Copyright Promotions Licensing Group, to use the characters in its promotions.From April, Mr Tickle and friends will appear on one million creative inserts and 125,000 direct-mail packs […]

NUHC pmi premium income up 19 per cent

Norwich Union Healthcare has seen an 19 per cent increase to £243m in 2001 from £204m in 2000 in premium income from private medical insurance business. NUHC managing director David Rogers says: “We are delighted by the continuing strong performance of the business, especially as it is set against the background of a market which […]

US equities: opportunities for short sellers expand

Optimism is as American as baseball and apple pie. And since the financial crisis, being optimistic about US equities has paid off: they have outperformed every other major developed market by a comfortable margin. Yet while there remain plenty of good reasons to be optimistic about US equities, Stephen Moore, manager of the Artemis US […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com