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Technical Note - IHT Treatment of EGLP

28th May 2015 - London

Technical Note - Inheritance Tax Treatment of Excepted Group Life Policies

An excepted group life scheme is subject to an inheritance tax charge on the tenth anniversary of its establishment and on each subsequent ten year anniversary. The charge is calculated by reference to the assets of the scheme as at the relevant date. It will only result in a tax liability if the scheme has assets at that time.

In most cases the only asset will be the excepted group life policy purchased by the relevant employer in respect of the potential liabilities of the scheme. In these circumstances the value of the assets held by an excepted group life scheme will usually be nil except in the following circumstances:

• if a death has occurred before the ten year anniversary and the proceeds have not been distributed prior to the ten year anniversary; or
• if a member of the scheme was terminally ill as at the ten year anniversary.

As a general rule and, subject to the exceptions listed above, there will be no charge to inheritance tax if an excepted group life scheme is terminated prior to the tenth anniversary of its establishment.

Trustees of excepted group life schemes generally have two years in which to distribute any benefits arising from the death of a member. For this reason clients may wish to consider terminating their excepted group life schemes no later than the eighth anniversary of their establishment.

Following termination a new excepted group life scheme may be established and a new group life policy taken out to ensure continuity of cover.

The information provided above is for guidance only and is based on Generali’s understanding of the current legislation. It is not intended to provide specific advice and clients should seek independent professional advice in relation to their individual circumstances.