Unapproved group life schemes will no longer be subject to tax on the benefits paid and are to be br...
Unapproved group life schemes will no longer be subject to tax on the benefits paid and are to be brought into line with approved schemes.
In the Budget, the Inland Revenue has closed a hole in the regulations that saw an unapproved scheme trigger a taxable charge upon the death of the first member within the scheme.
Unapproved schemes are generally set up by directors, equity partners or the self-employed.
An approved scheme generally only applies to four times salary and the salary cannot be above the earnings cap, which for 2002/2003 was £97,200.
Upon the death of the first member in an unapproved group scheme, any subsequent deaths are taxed at 40% on the difference between the amount of the premiums paid and the amount of benefit paid on the death.
Simon Bailey, product development director at Scottish Equitable, said in order to get around this extra level of taxation, some life companies in the past re-issued a policy after the first death.
The change took effect on 9 April 2003, removing retrospectively all tax charges arising before that date as a result of gains on group policies making any person who paid the tax eligible for repayment of that charge.
Bailey said it is not yet clear how far back these changes will apply.
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