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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15940
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I am new in the UK. I have a life assurance program from my

Resolved Question:

I am new in the UK. I have a life assurance program from my work and I am trying to figure out how will my beneficiaries be taxed if something happens to me. I know it is not subject to NI contribution but I am confused about it being payroll tax and/or inheritance tax. Should I establish a trust as the beneficiary of it so that it is subject to the inheritance tax instead?
Thanks in advance...
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.
Hi.

Are you employed by a UK employer? Have you been asked by your employer for the names of who the life cover should be paid to if you should die whilst working for them?
Customer: replied 2 years ago.

Hi TonyTax,

Yes, I work for a UK incorporated (limited) corporation.

On our Life Assurance program we specify our beneficiaries to receive payment upon death.

BR,

Ioannis

Expert:  TonyTax replied 2 years ago.
Thanks.

Leave this with me while I draft my answer.
Customer: replied 2 years ago.

Thank you...

I don't have a copy of the description of the program. Just that it is a Life Assurance program.

BR,

Ioannis

Expert:  TonyTax replied 2 years ago.

Hi again.

If the life cover was paid out your estate, it could be subject to Inheritance Tax (certainly not Income Tax) depending on who your assets were left to.

Most employers will ask an employee to specify beneficiaries for the life cover so that, should you die in service of your employer, the payout will bypass your estate, be paid directly to your beneficiaries and escape Inheritance Tax. Your employers have asked you for the names of your preferred beneficiaries so you should confirm the tax implications as they understand them as they certainly appear to have considered them. I'm sure they will confirm what I've written here.

I hope this helps but let me know if you have any further questions.

Customer: replied 2 years ago.

Thanks TonyTax,

So basically, if I understand correctly, it appears that the administrators of the program have made provisions so that the beneficiaries pay no taxes (inheritance or income), right?

If you don't mind I will leave this open so as to provide you with any information I get from our HR department on this. Are you OK with this?

BR,

Ioannis

Expert:  TonyTax replied 2 years ago.
IHT is paid by the executors of the deceased's estate, not the beneficiaries of an estate directly.

The life cover will be structured so that any life cover payout will be paid tax free to your named beneficicaries, thereby bypassing your estate.

Feel free to check this with your employer.
Customer: replied 2 years ago.

Hi Tony,

I asked the question and I got this answer:

As per policy,Life Assurance is a benefit that is not liable to National Insurance Contributions. For some employees, it may be liable to Income Tax by reference to the Pension Tax Allowances.

Lump-sum payments made under this benefit will be subject to the Pension Tax Allowances but will not be subject to National Insurance Contributions.

What is your take?

BR,

Ioannis

Expert:  TonyTax replied 2 years ago.

Can you tell me what level of payout would be made please? Unless the payout exceeds £1.25 million. Take a look here for more information.

Customer: replied 2 years ago.

Hi Tony,

Don't I wish!!! It is very much less than that...

Good to know. Thank you for your help. Unless there is anything else I should know, I think we can close the case...

BR,

Ioannis

Expert:  TonyTax replied 2 years ago.
Thanks.
TonyTax and other Tax Specialists are ready to help you
Expert:  TonyTax replied 2 years ago.
Hi again.

It's been a few days since I answered your question. Is there anything you need further clarification on?