Contents
1. Key Points
2.What are offshore bonds?
3.Taxation of individuals
4.Taxation of personal representatives
5.Top slicing relief
6.Time apportionment relief
7.Personal portfolio bonds (PPBs)
8.Overseas tax issues
9.Chargeable event certificates
What are Offshore Bonds and how are they taxed for individuals and personal representatives.
Key Points
- Offshore bonds grow in a virtually tax-free environment which is known as gross roll-up.
- Individuals can offset their gain against any unused personal allowance, the starting rate of 0% and the personal savings rate if applicable.
- Individuals may be able to make use of top slicing to reduce the tax payable on the gain.
What are offshore bonds?
Offshore bonds and protection products are 'foreign policies of life insurance and foreign capital redemption policies' for UK tax purposes (Section 476 of the Income Tax (Trading & other Income) Act 2005). From 17 November 1983, a policy issued by a non-UK life office will be 'non-qualifying' for tax purposes, meaning all gains are potentially taxable. Similarly, UK investment bonds are also non-qualifying. Indeed, the same tax legislation determines the tax treatment of these respective policies. Accordingly, the principles covered in theTaxation of UK Investment Bondsarticle hold good for offshore policies but certain special rules apply.
In this section we will consider how offshore policies are taxed for individuals, personal representatives and trustees.
Taxation of individuals
Individuals liable for tax on a gain on a UK bond are treated as having paid tax on the gain at basic rate (currently 20%). The reason for this is that the underlying fund is taxed. As a result, tax is only payable by those individuals with a marginal rate of 40% or 45%.
In contrast, offshore policies can be issued by life companies based in jurisdictions which impose no tax on the income and gains of the underlying funds – this is known as 'gross roll-up'. Growth may not be entirely tax-free however, due to the impact of irrecoverable withholding tax which may be deducted from interest and dividends received by the fund.
When an offshore policy is surrendered, an individual can be charged income tax at nil if the personal allowance is available; starting rate 0%; basic rate 20%, higher rate 40% and additional rate 45%. If you need to make higher rate and additional rate calculations, see our articleTop slicing relief. Top slicing relief is available for the higher rate and additional rate calculations.
In addition, effective from 6 April 2016, a personal savings 'allowance' (PSA) was introduced.The use of the word ‘allowance’ is misleading as it is, in fact, a zero rate tax band.
The amount of PSA depends on adjusted net income. Up to £50,270 the PSA is £1,000, then £500 up to £125,140 then zero.‘Savings income’ includes gains on offshore bonds.Adjusted net income is total taxable income before any personal allowances and less certain deductions such as gross gift aid payments and gross relief at source pension contributions.
Example: Taxation of an individual
In 2024/25, Helen who is 50 years old and has zero income realises a chargeable event gain of £19,000 on the full surrender of an offshore bond. Tax payable would be as follows:
£12,570 | @Nil | £0 |
£5,000 | @0% | £0 |
£1,000 | @0% | £0 |
£430 | @20% | £86 |
£19,000 | £86 |
To put this into context, if Helen realised the same gain on an onshore bond then she would have had no personal income tax liability based on these figures since the gain is comfortably within the basic rate limit.
So in very broad terms:
- Basic rate taxpayers are subject to 20% tax on the gain
- Higher rate taxpayers are subject to 40% tax on the gain
- Additional rate taxpayers are subject to 45% tax on the gain.
It’s not as simple as that however, since gains are generally treated as forming the highest slice of income. A basic rate taxpayer can therefore be pushed into higher rate, or a higher rate taxpayer can be pushed into additional rate. 'Top slicing' relief may therefore assist in reducing the rate of tax charged by applying a spreading mechanism.
Chargeable event gains (without top slicing) are included in an individual's income when assessing entitlement to personal allowancesPersonal Allowances planning article. Withdrawals within 5% limits do not affect personal allowance entitlement.
With regard to individual policyholders reporting the gain, the action to take will depend on the individual’s circumstances as explainedhere.
- If the individual is already within Self Assessment, the gain should be reported in their Self Assessment return.
- If the individual is not within Self Assessment, but the gain (together with their other savings and investment income) exceeds £10,000, or if less than £10,000 and they need to pay to on the gain, they will need to register for Self Assessment and report the gain in their Self Assessment return. See the following guidance on how to register:https://www.gov.uk/self-assessment-tax-returns/sending-return
Gains arising from foreign policies should be reported in the return using supplementary pages SA106. Include the details of the gain under ‘Other overseas income and gains’.
Taxation of personal representatives
The government announced at Spring Budget 2023 its intention to legislate the proposals outlined in a 2022 consultation - Income Tax: Low income trusts and estates.
These reforms;
- Provide that trusts and estates with income up to £500 do not pay tax on that income as it arises. Where a settlor has made other trusts, the amount is the higher of £100 or £500 divided by the total number of existing trusts (subject to some exceptions)
- Remove the default basic rate and dividend ordinary rate of tax that applies to the first £1,000 slice of discretionary trust income
- Provide that beneficiaries of UK estates do not pay tax on income distributed to them that is within the £500 limit for thePRs
- Make technical amendments to ensure for beneficiaries of estates that their tax credits and savings allowance continue to operate correctly
The technical amendments took effect from 6 April 2023. The other three changes are effective from 6 April 2024 onwards. The legislation is comprised within Finance (No.2) Act2023.
The first, third and fourth bullet points are relevant for personal representatives.
Regarding a deceased’s estate, all forms of income are included e.g. interest, rental income and dividends. If total income in the tax year is not more than £500 then it will be tax free (for both the personal representatives and the estate beneficiaries). If income exceeds £500, then all of it is taxed as normal.
Personal representatives pay income tax at basic rate (and 8.75% (2024/25) for dividend income). When income arising during the administration period is distributed to a beneficiary, then the beneficiary will include the gross equivalent in his/her tax return. The personal representatives will provide the beneficiary with a statement, showing the amount of income paid to that beneficiary and the amount of tax deemed to have been paid on that income.
The tax treatment of a chargeable event gain realised by personal representatives in respect of an offshore bond is explained in IPTM3240as follows:
Gains which are not treated as though basic rate tax had been paid on them (offshore bonds)
The personal representatives should report these gains on a Trusts and Estates Self-Assessment return as follows:
· Gains from offshore (foreign) policies should be reported in box 4.6 of SA904.
The gains are charged under s466 ITTOIA05 as savings income at basic rate in the hands of the personal representatives. Top slicing relief is not available to personal representatives.
The personal representatives can use box 17 on R185 (Estate Income) to give the beneficiary the details of the income received and tax accounted for.
For the beneficiary, the income falls under s664(2)(a) ITTOIA05 and, by virtue of s680B ITTOIA05, is treated as savings income. The beneficiary’s savings rates and allowances apply as appropriate. This amount of estate income does not retain any characteristic for the beneficiary, other than "savings income", so top slicing relief is not available for the beneficiary.
The beneficiary will receive credit for the basic rate tax previously paid by the personal representatives, so there will be no further tax payable unless they are a higher or additional rate taxpayer. A beneficiary in Self-Assessment should report the income at box 17 of SA107.
The beneficiary may claim a repayment if they are a non-taxpayer.
To expand on the above guidance let’s consider a hypothetical example:
John was the sole owner of an offshore bond. John dies but the bond didn’t end because it was set up on a capital redemption basis (no life assured). His daughter Sue is the sole beneficiary of his estate.
The personal representatives surrender the bond realising a gain of £10,000 and will be subject to basic rate tax (20%) on the gain i.e. £2,000. Top-slicing relief does not apply.
After deducting the tax due the personal representatives will distribute the proceeds to Sue and provide her with form R185 detailing the estate income and tax paid.
Sue will be assessed for tax on gross savings income of £10,000 but will receive a tax credit of £2,000 for the tax treated as paid by the personal representatives.
If Sue only had taxable salary of £20,000 then she would have no further tax to pay due to the tax credit. However, as the income retained it’s character as savings income Sue can make use of her unused savings rates and allowances. In this example Sue does not qualify for the 0% starter rate for savings but as she has no other savings income she will have a personal savings allowance (PSA) of £1,000. This means Sue could make a repayment claim as only £9,000 should be subject to basic rate tax. Therefore she could make a repayment claim for £200 (£1000 x 20%).
If Sue had no income at all she could make a repayment claim for the full £2,000 tax paid by the personal representative. However, if Sue was close to the higher rate band or already a higher or additional rate taxpayer then she would have further tax to pay.
For the avoidance of doubt, although the income from the estate retains it’s character as savings income, the beneficiary in these circumstances is not assessed as having incurred a chargeable event gain which means top-slicing relief is not relevant.
Whether further income tax is payable by a beneficiary, or not, depends on the personal tax situation of each person. The personal representatives may also consider a different approach and instead assign the bond to the beneficiary(s). Such an assignment would not trigger a chargeable event as it would not be for money or money’s worth. Top slicing relief could then apply to future encashment gains which might result in a better net outcome for the beneficiary in comparison to being treated as receiving savings income from the estate. For complex estates with multiple beneficiaries, the strategy of assigning the bond (or segments within it) to those beneficiaries may be more complicated than a simple encashment by the personal representatives.
Note finally that individuals subject to devolved tax systems in Scotland and Wales, pay the same tax as the rest of the UK on savings (and dividend income).
Taxation of trustees
The circumstances when trustees are taxable are considered in theTaxation of UK Bonds article.
With effect from 6 April 2024, trusts and estates with income up to £500 do not pay tax on that income as it arises. Where a settlor has made other trusts, the amount is the higher of £100 or £500 divided by the total number of existing trusts (subject to some exceptions).
Where trustees are taxable, and it is an offshore policy, then the gain will be subject the rate applicable to trusts applies (45%).
Example: The trustees of the MacPherson Discretionary Will Trust 2024/25
In2024/25, the trustees of the MacPherson will trust surrender an offshore bond purchased in 2009 and realise a gain of £50,000. This is the sole investment of the trust. Tax payable would be as follows:
£50,000 | @45% | £22,500 |
Top slicing relief is not available to trustees.
In view of the 45% rate of tax which applies, planning opportunities arise for trustees to consider an assignment of the bond or of specific segments to beneficiaries prior to encashment. Similarly, an irrevocable deed of appointment under bare trust may be considered for a minor beneficiary. These planning opportunities are covered in theTax Planning with UK Investment Bondsarticle.
Top slicing relief
This is covered in detail in ourTop Slicing Reliefarticle.
No top slicing relief is available for the annual gains that arise on 'personal portfolio bond events' (see later section).
Time apportionment relief
The rules onthispage of HMRC manuals applied prior to 6 April 2013. The page deals with the fact that an offshore bond gain is reduced if the policyholder was not UK resident throughout the policy period. This is often referred to as a ‘time apportioned reduction’.
Prior to 6 April 2013, the chargeable event gain is reduced by an appropriate fraction equal to A/B
- A - the number of days on which thebeneficial ownerwas not UK resident in the ‘policy period’ (i.e. the number of days the policy has run before the chargeable event occurs.
- B - the number of days in that period.
Accordingly, if thebeneficial ownerwas non-UK resident for the whole period then the chargeable gain will be nil.
The reduction does not apply to a policy held by non-UK resident trustees unless it was held by them on 19 March 1985.
Thispage then deals with the changes to these rules from 6 April 2013. It is explained that
1) Time apportioned reductions are extended to gains made on UK Bonds (previously just offshore bonds)
2) Time apportioned reductions will be calculated by reference to the residence history of the person liable to income tax on the gains. A time apportioned reduction can also apply to a chargeable event gain arising to the estate of a deceased individual. The relief will therefore be available in the majority of cases to the person liable to tax in respect of the chargeable event gain. Previously the reduction was based on the residence history of the policyholder (the legal owner) rather than the beneficial owner.
3) From 6 April 2013 tax residence is determined under a new statutory residence test.
1) And 2) above affect bonds issued on or after 6 April 2013 and owned by individuals. But also, those changes affect bonds issued before this date if on or after 6 April 2013:
- The policy is varied and this results in an increase in the benefits secured.
- There is an assignment of rights, or a share of the rights, under the policy to the individual. This also applies if a chargeable event gain arises to the estate of an individual and the policy was assigned to the deceased person on or after 6 April 2013.
Exercising an option under an existing policy counts as a variation of the policy but continuing regular premium commitments will not constitute a variation. Increases to premiums that are automatic as part of the policy will not represent a variation (unless they relate to the exercise of an option),
Where the gain is made on or after 6 April 2013, the A/B formula is restatedhereto reflect the statutory residence test.
Thispagedeals with assignments between spouses and civil partners.
A bond may have been assigned between spouses/civil partners who are living together. If this bond gives rise to a chargeable event gain at some later date after assignment, then the ‘material interest period’ (see below) may be calculated by reference to the period of ownership of both individuals.
For periods during which the individuals were non-UK resident any foreign days during their period of ownership may be included in the calculation of the time apportioned reduction.
‘Material Interest Period’
This is the part of the policy period during which the individual meets one of the following conditions:
- The individual beneficially owns the rights under the policy or contract.
- The rights are held on non-charitable trusts which the individual created.
The policy period is the period for which the policy has run prior to the chargeable event.
Where a bond is held by more than one individual the calculation of time apportioned reduction will be applied separately to each individual’s share of the gain from the policy, based on their own residence history.
When a gain arises from a UK bond and the individual is not resident in the UK, the gain is not subject to tax in the UK. However, this does not apply if the period of non-UK residence is temporary – definedhere. If this anti avoidance rule kicks in then chargeable event gains arising during a period of temporary non-residence will be treated as income arising in the year of return to the UK. Time apportionment relief and top slicing relief will be available in this situation.
Please see theTax Planning with Offshore Policiesarticlefor more information.
Personal portfolio bonds (PPBs)
The chargeable event regime enables individual investors to postpone tax on underlying economic gains until the policy comes to an end.
The personal portfolio bond (PPB) rules provide a stricter regime where the property that determines the benefits under the policy is personal to the investor in a way that goes beyond the usual choices offered. One example of this is a bond where benefits are determined by reference to shares in the policyholder's private trading company, which he has transferred to the insurer.
The PPB regime is therefore an anti-avoidance measure founded on the principle of an annual charge. The rules apply to a policy that is a PPB at the end of an 'insurance year', unless it is the 'final insurance year'. The calculation made to determine whether a gain arises and, if so, its amount is in addition to any other calculation required under the chargeable event regime.
An insurance year begins on the day a policy is taken out and on the same date in subsequent years. It ends on the day before the anniversary of the start date and each subsequent year.
Example: personal portfolio bond penalties
A policy taken out on 3 June 2012 will have an insurance year ending on 2 June 2013. The second insurance year begins on 3 June 2013 and ends on 2 June 2014 (and so on).
Where a policy is a PPB at the end of the insurance year, there is a PPB gain if the sum of premiums paid and total amount of earlier PPB excesses exceeds the total amount of part surrender gains. The PPB gain is equal to 15% of the excess. This calculation is not performed for the final insurance year.
The penal effect of this legislation can be illustrated with a simple example.
Sam is a UK resident 40% taxpayer who invests £100,000 in a bond caught by the PPB rules and fully encashes it after 5 years for £140,000.
Insurance year 1 gain : £100,000x15% = £15,000 (tax due £6,000)
Insurance year 2 gain: (£100,000+£15,000)x15% = £17,250 (tax due £6,900)
Insurance year 3 gain: (£100,000+£15,000+£17,250)x15% = £19,838 (tax due £7,935)
Insurance year 4 gain: (£100,000+£15,000+£17,250+£19,838)x15% = £22,813 (tax due £9,125)
Insurance year 5 gain: (£100,000+£15,000+£17,250+£19,838+£22,813)x15% = £26,235 (tax due £10,494)
AEncashment: | £ |
Proceeds | 140,000 |
Less Premium | (100,000) |
Less total PPB gains | (101,136) |
Deficiency | (61,136) |
Sam would get no relief for this deficiency since he incurred no previous chargeable event gains on part surrender or part assignment. Accordingly he will have paid total tax of £40,454 on an economic bond gain of £40,000.
The PPB legislation (S516 ITTOIA 2005) only applies to policies where:
- Some or all of the benefits are determined by reference in some way to an index or property of any description, and
- Some or all of that property or the index may be selected by the policyholder, or somebody connected with the policyholder or acting on their behalf.
Except where the terms of the policy only permit the selection of certain narrowly defined property or indices. In particular a policy isnota PPB if all of the property, which may be selected falls within the following categories (S520 ITTOIA 2005).
- An internal linked fund of the insurer
- Units in an authorised unit trust
- Shares in an approved investment trust
- Shares in an open-ended investment company (OEIC)
- Cash (but not acquired for speculative purposes)
- A life policy, life annuity or capital redemption policy (unless itself linked to a PPB)
- An interest in a collective investment scheme constituted by:
- A company which is non-UK resident (other than an OEIC)
- A unit trust scheme the trustees of which are non-UK resident
- Any other non-UK arrangements which create co-ownership rights.
In addition the opportunity to select must broadly be available to other policyholders.
It is important to note that a critical factor in determining whether a policy is a PPB is the scope of a policyholder's ability to select a property or index under the terms of the policy, rather than what in practice is selected. Where the policyholder genuinely does not have the ability to select property or an index, even if that property or index is not within any of the permitted categories, the policy will not be a PPB, although the presence of personal assets would test this analysis.
Legislation was introduced in Finance Bill 2017 to add new subsections to Section 520 of Income Tax (Trading and Other Income) Act 2005. This provides a power to update the table contained in Section 520 (2) of Income Tax (Trading and Other Income) Act 2005, in secondary legislation. Regulations to remove a property category will be subject to the affirmative procedure, whilst additions will be subject to the negative procedure.
Regulations have been published adding UK real estate investment trusts, overseas equivalents of investment trust companies and authorised contractual schemes to the table, and removing category 7a. An interest in a collective investment scheme constituted by a company resident outside the UK, other than an open-ended investment company.
Top-slicing relief is not available on gains on PPB events and therefore insurers must always report the number of years as 1 on chargeable event certificates (see later section).
Overseas tax issues
Where an overseas life company issues a policy to a UK investor who subsequently relocates to that same country, then tax implications can potentially arise. For example the company may then be obliged to deduct tax from the policy and pay it to the host tax authorities in recognition that the policyholder then resides in that territory. In addition, if the overseas jurisdiction has a system which taxes gifts, acquisitions or estates then the policy might fall within that regime in certain situations. Exemptions and reliefs might apply but each investment would need to be considered on a case by case basis.
Chargeable event certificates
Overseas insurers fall within the scope of the chargeable event reporting rules where a minimum level of business is conducted with UK residents. Accordingly, in most circumstances, information about chargeable events must be provided to policyholders and HMRC in broadly similar fashion to that provided by UK insurers.
Where the level of business with UK residents of an overseas insurer exceeds a £1 million threshold, it is required to have a person in the UK acting as its tax representative unless it is released by HMRC from this requirement where certain conditions are met. For example the insurer may supply the information directly.
The main duties of a tax representative are to provide information about chargeable events and gains to policyholders and HMRC.
Policyholder resident in the UK?
An insurer is not required to take active steps to establish whether an individual policyholder is resident in the UK – that is a matter for HMRC. The insurer must act according to the residence status that is indicated by the information in its possession.
An insurer does not need to ask policyholders for information that it doesn’t need for business reasons, or take active steps to determine where policyholders are resident. It should however act upon any relevant information that it receives.
If the insurer has a live correspondence address for the policyholder then it should treat the policyholder as resident in the country, unless it has other information indicating that the policyholder is actually resident in another country. If the insurer has reason to believe that the address is not where the policyholder lives, but has no information about the policyholder's place of residence, then there is no requirement for the insurer to establish the place of residence unless it chooses to do so for its own purposes.
There may be circumstances in which the insurer has no information about where a policyholder lives at the time of the event either directly from the policyholder or via an intermediary. In the absence of any contrary evidence, an insurer should assume that the policyholder is resident in the UK if:
- It receives a request to pay the policy benefits to an address in the UK
- It receives a request to pay policy benefits on maturity or surrender directly to a UK bank or building society account, or
- A new policy is sold through a UK-based intermediary and the insurer has not received any notification of an overseas address either at the time of the sale or subsequently.
Information to be provided to UK resident policyholders
The information that must be reported to policyholders and the circumstances in which it must be supplied are similar to that for UK insurers. Please see theTaxation of UK Bonds articlefor more information including time limits.
The following two aspects relate only to offshore policies:
- Whether income tax is treated as paid on a gain from the policy
- Number of years for top-slicing relief purposes.
Whether income tax is treated as paid on a gain from the policy
The tax representative is required to report whether income tax would be treated as paid, and if so the amount of the tax.
In practice however, where the policy is from an overseas insurer it will almost always be the case that no income tax is treated as paid on the gain. The main exception is where the policy was taken out before 18 November 1983 and has not been varied since then to increase the benefits secured or extend the term.
Number of years for top-slicing relief purposes
A tax representative is required to calculate and report the full number of years for top-slicing relief. Where a policyholder was not resident in the UK for part of the policy period, the number of years is reduced to reflect this but the tax representative must not report the reduced number, even if it has the information to calculate it. Theself-assessment tax return guidancealso tells a policyholder how to work out this reduced number.
Information to be provided to HMRC
A tax representative is also required to provide information to HMRC:
- On chargeable events other than whole assignments if the gain, aggregated with any connected gains exceeds half the 'basic rate limit' for the tax year in which the gain arises, and
- On all whole assignments for money or money's worth, regardless of the size of the gain.
For the tax year ended 5 April 2025, half the basic rate limit is £18,850..
A gain is connected with another gain if they both arise on chargeable events in the same tax year on policies with the same overseas insurer where there is at least one common policyholder.
Even where the gain is below the basic rate limit, HMRC may require a tax representative to supply a copy of the chargeable event certificate that it was required to send to the policyholder. In practice, HMRC is not likely to invoke this power frequently since in enquiry cases the taxpayer will be the first person from whom HMRC will seek to obtain evidence in support of entries in the tax return.
The time limit for a tax representative to send a certificate to HMRC is the same as for a UK insurer. Please see theTaxation of UK Bonds article.
Supply of information directly by overseas insurer
As noted above, an overseas insurer may supply information about chargeable events to policyholders and HMRC directly, rather than through a tax representative. The information required depends on when the policy was made.
- If the policy was made after 5 April 2000 then the information to be provided is largely the same as for UK bonds, the main difference being that gains on assignments should be reported.
- If the policy was made before 6 April 2000 then the information that the insurer must provide is more limited.
A chargeable event for pre-6 April 2000 policies is reportable if it is a last event (ie if it brings the policy to an end). This will be on the maturity or full surrender of the policy, or on the death of an individual giving rise to benefits under the policy. The 'last event' is only reportable where the total of benefits paid:
- on the event, and
- on any other 'last events' in the same tax year on policies with the same insurer where at least one of the policyholders is the same…
…exceeds twice the basic rate limit (2 x £37,700) = £75,400 for 2024/25), unless the overseas insurer is satisfied that no gain arises.
If the 'last event' is a death, the insurer must report where the death benefit exceeds twice the basic rate limit. It must not substitute the surrender value immediately before death, even though for life policies that figure is used in the chargeable event gain calculation.
It is usually clear when a policy was made. However, where a policy is altered after 5 April 2000 in such a way that goes to the root of the policy it will bring into existence a new policy, which will then fall within the reporting rules for policies made after 5 April 2000. An example of such a change would be a change of life assured.
The insurer does not have to report information about a chargeable event on a pre-6 April 2000 policy to the policyholder. However, the insurer may send the policyholder a copy.
For post 5 April 2000 policies, an overseas insurer must provide a certificate to a policyholder within three months of the chargeable event. However, an insurer might not find about an assignment or death until sometime after the event. Accordingly, it is acceptable to issue the chargeable event certificate to the policyholder within three months of being notified of the event. Certificates should be sent to HMRC within three months of the end of the tax year in which the certificate for the policyholder was sent.
Currency in which gains and other information may be reported
Some policies may be denominated in a currency other than sterling. UK resident policyholders have to enter the gains in sterling in their tax returns. If chargeable event certificates are not expressed in sterling the method of currency translation to be used is described below.
Reporting thresholds
In many cases the tax representative or insurer will need to calculate the chargeable event gain or policy proceeds in sterling to check whether it needs to report the event to HMRC because the reporting thresholds are linked to the basic rate limit, which is denominated in sterling. Currency conversion should be at the rate applying on the date of the event.
Calculation of gains and other amounts for policies in foreign currencies
Where a tax representative or insurer reports a gain in sterling, it should compute the gain by calculating the amount of the chargeable event gain in the currency in which the policy is denominated and then convert it into sterling at the conversion rate on the date of the event. This ensures that currency fluctuations during the life of the policy are disregarded.
Where a tax representative or insurer reports other amounts in sterling, for instance the premiums paid where there has been an assignment, they should be translated at the rate applying on the date of the chargeable event.
Reporting duties where the policy is held on trust
Where a policy is held in trust, the trustees would in most cases be the policyholder. A trust is a single continuing body for tax purposes and so the trustees are treated as a single policyholder.
Where an overseas insurer or tax representative must send a chargeable event certificate or information notice to HMRC, it should enter on the certificate or notice the name and address of the trustee that has been designated to receive correspondence. If there is no such designated trustee then the insurer should include the names and addresses of all the trustees.
Where it must send a chargeable event certificate to the policyholder, it should send a certificate to the first named trustee, or to any trustee for which it holds an address.
Whether trustees are UK resident
Insurers and tax representatives are only required to report events on 'relevant insurances'. A policy will only be a relevant insurance if the policyholder is resident in the UK so where the policyholders are trustees it is necessary to know whether the trustees, when regarded as a single body, should be treated as UK resident.
If all or none of the trustees are resident in the UK then the trustees must be treated as UK resident or not as appropriate. But where the residence of the trustees is mixed, some UK resident and some not, the position is less straightforward.
Then the trustees are treated as UK resident if the settlor of the trust was resident or ordinarily resident or domiciled in the UK when he or she created the trust or provided funds for it. This is not necessarily information that an insurer or tax representative will hold and it is not expected to take steps to obtain it. An insurer should act on the basis of information in its possession. Where it knows that at least one of the trustees is UK resident, it should treat the trustees as being UK resident, unless it has information to suggest otherwise, and report events on the policy to the trustees and HMRC where required.
Chargeable person
Either the trustees or the settlor may be chargeable on any gains arising on the policy. However, in operating the chargeable event reporting rules an overseas insurer or tax representative does not need to know who the liable person is, since the rules only require that information is provided about, and to, policyholders. Insurers do not need to establish the identities of the beneficiaries or settlors of the trust.
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