With effect from 1 October 1999 declarations of trust to hold insurance policies will be exempt from fixed stamp duty.
The Inland Revenue's intention is that this exemption will cover declarations of trust made after an insurance policy had been issued as well as those which take place as part of the process of bringing the policy into existence.
Further the exemption will apply to trusts containing personal pension and retirement annuity insurance contracts, but will not extend to the declaration of trusts governing occupational pension schemes, irrespective of whether these are invested wholly or mainly in insurance policies.
This is a very welcome exemption especially in view of the significant increase in the duty from 50p to £5. Much credit for this relaxation must go to the ABI. The extension to policies already issued that are made subject to trust is also of use.
Advisers should be constantly aware of the importance, especially in respect of policies predominantly providing death benefits, of ensuring that trusts where appropriate do "surround" policies. Normally, the declaration of trust over an existing policy will cause no IHT problem. It is however important that care is taken where:
– the life policy has a high value or (if permanent policy) the premiums paid were not significant
– the life assured is in serious ill health.
In either of these two cases, the transfer of value may be significant even though (save for discretionary trusts), the transfer should be potentially exempt or exempt. The normal expenditure out of income exemption would not, however, be available.
It is recommended that because of the potential CGT problems that can arise in respect of any future disposal of the policy (which definition, for this purpose includes payment of the death benefit) no assignment into trust of an existing life assurance policy into a "business trust" is made.