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HMRC challenges tax status of relevant life plans


The tax status of relevant life plans with critical illness cover has been thrown into question after HM Revenue and Customs told one provider its product could not qualify for favourable tax treatment.

Back in January, Aviva launched two new products on the Aviva Life Protection Solutions platform which they said included a “market first”: relevant life insurance with the option to add critical illness cover.

Legal & General and Royal London were among providers that challenged whether or not adding critical illness to such employer protection products was allowable within tax rules.

Relevant life plans aim to allow business to provide tax efficient death benefits to employees, and have advantages including benefits not counting as part of a lifetime or annual pensions allowance and may be treated as a business expense by the employer.

Aviva defended the tax status of the new protection products, saying they were “confident” they comply with the relevant legislation.

However, in a letter to fellow relevant life provider Vitality seen by Money Marketing, HMRC confirmed relevant life plans could not cover critical illness and receive the favourable tax treatments given to relevant life plans unless the critical illness necessarily leads to retirement.

The letter reads: “Where the reason for a payment on or in anticipation of retirement is ill health during service, including critical illness… it will fall within the definition of excluded benefit. However, where the illness will not necessarily lead to a retirement, the policy is not therefore exclusively for provision of excluded benefits… HMRC’s view is they are relevant benefits.”

Vitality will not be offering serious illness cover on its relevant life plan as a result.

Threesixty managing director Phil Young says: “It’s not unusual that HMRC guidance is fuzzy, but this is a critical issue and it would be good to see insurers come together on this one rather than score points, the issue is too important.

“It also begs the question whether HMRC should be required to make all individual guidance public as advisers are currently being required to take a lot of faith.”

HMRC’s letter in full




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There are 8 comments at the moment, we would love to hear your opinion too.

  1. This heading is pure click-bait and misleading.

  2. @scrapheap: I see your point but I guessed immediately they were talking about Aviva’s marvellous new policy that somehow managed to include critical illness although they refused to say where they’d found a loophole in HMRC rules. (Answer: they hadn’t.)

    So much for “confirmed by external QC opinion”. Turns out that it’s HMRC who decide what the rules are, not QC.

  3. …until there is a test case. At which point is the legal system which will determine whether HMRC’s interpretation of legislation is correct…

    …because HMRC are never wrong and have never lost a case, have they?

  4. “HMRC challenges tax status of relevant life plans” this title is misleading. It should state HMRC challenges tax status of Aviva’s relevant life plan with Critical illness. Does this mean Aviva got it wrong and that the QC opinion is a waste of time?

    So what HMRC are saying is that the policy only works if the employee is intending to retire or retires when making the claim. So if employee recovers and goes back to work, what then? Must a certain period lapse? Still not totally clear..

  5. Too clever by half, it was only ever meant to keep life cover out of the Lifetime Allowance calculation.

  6. Can someone tell me where I can read “HMRC’s letter in full”? Or so I have to rely on what I assume is Vitality’s “summary of HMRC’s decision”?

  7. Aviva’s high premiums make this largely irrelevent anyway. With a recent protection case for a business-owner I compared ‘standard’ Life + CIC (from a Scottish insurer) with Aviva’s RLP + CIC, and found the latter to be only about 10% cheaper once one had factored-in the tax treatment into calculating the effective monthly cost.

    A 10% saving is hardly worth it – especially if there is a question-mark over the validity of the policy.

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