Excepted Group Life
What is it?
The aim of the policy is to provide a lump sum benefit on the death of a group of employees (at least two). This removes the need for the company to set up a registered group life scheme.
Provided the arrangement meets the eligibility criteria below, an excepted group life policy has a number of advantages:
- The benefit won’t form part of the employees’ lifetime allowances.
- The premiums paid won’t form part of the employees’ annual allowances (the amount that can be contributed by, or on behalf of, an individual to any registered pension scheme with the benefit of tax relief). So employees are still able to make full use of their annual allowances to make contributions to registered pension schemes.
- Premiums paid by employers are not normally assessable for employer or employee National Insurance contributions.
A terminal illness benefit is available on most contracts so in the event of you being diagnosed as suffering from a terminal illness i.e. one where the expectation of life is less than twelve months the sum assured under the contract will become payable.
The following criteria must be fulfilled, and must apply throughout the lifetime of the policy:
- The policy must provide a capital sum payable on death before age 75. The policy may contain exclusions which apply to all insured individuals.
- The same method for calculation of the capital sum and any limitation e.g. stated fixed benefit or multiple of earnings must be applied to all lives insured.
- The policy must not provide a surrender value other than a refund of “unused” premiums.
- Only the benefits set out above may be provided by the policy.
- Benefits payable under the policy must be paid to either an individual entitled to them (or a charity), or a Trustee for payment to individuals.
- No person whose life is insured under the policy may receive any death benefit in respect of another group member purely on the basis that they are one of the insured persons under the policy.
- The policy is not taken out with the main purpose of avoiding the payment of tax.
Premiums paid by employers are not normally assessable on the employees as a benefit in kind so they’re not subject to income tax.
The premiums may be treated as an allowable expense for the employer in calculating their tax liability provided that the local inspector of taxes is satisfied they qualify under the ‘wholly and exclusively’ rules.
As the benefits are payable through a discretionary trust, in most cases the benefits are paid free of inheritance tax as the payment is not part of the employee’s estate. But the trust will be subject to normal inheritance tax rules for discretionary trusts, which in some circumstances may give rise to the following charges:
- Up to 6% of the value of the trust fund on each 10th anniversary of the date the trust was established (the periodic charge). A periodic charge will only apply if there is a value held in the trust at the 10th anniversary. This could happen if, for example, an employee dies shortly before the 10th anniversary and the benefits have not been distributed to the beneficiaries.
- Up to 6% of the value of the fund on appointment of benefits out of the trust to a beneficiary (the exit charge).
All statements concerning the tax treatment of products and their benefits are based on our understanding of current tax law and HM Revenue and Customs’ practice. Levels and bases of tax relief are subject to change.
There are a number of risk considerations that need to be taken into account. It is important that you are aware of these.
- Please note that at the end of the term selected, cover will lapse and no further benefit will become payable.
- The present tax free treatment of the policy benefits may change.
- This contract is designed to provide a high level of cover at minimal cost and therefore does not acquire a surrender value at any time.
- If for any reason you cease paying premiums, cover will cease.
- If any relevant information provided, when applying, is not disclosed accurately and honestly, this could result in any cover offered becoming invalid and/or may result in the non-payment of any future claims.
- Failing to disclose any requested or relevant information may adversely affect any future claims.
- If this policy is to replace any existing policy offering the same type / level of cover, you must not cancel any existing policy until the new policy is in force.