IPTM7020 - Scope: group life policies: tax legislation: ITTOIA05/S480 to S482

Group life policies and the chargeable event rules

The tax guidance which follows in this and subsequent paragraphs assumes that, contractually, the policy is a group policy.

Although group life cover can often be provided under an approved pension scheme, there are many circumstances where that is not possible. Before Finance Act 2003 (FA03), such policies fell within the chargeable event rules, potentially giving rise to taxable gains. However, FA03 introduced an exclusion from the chargeable event rules for group life policies which only provide death benefits, provided they meet certain other conditions. The detailed conditions which need to be met for a policy to be an ‘excepted group life policy’ are explained in IPTM7025 to IPTM7050. Group life policies which insure individuals up to the age of 75 and only provide death benefits for the dependants of that person will now not, provided the conditions are met in full, give rise to tax charges.

If a group life policy does not meet the conditions to be an excepted group life policy then it is within the chargeable event rules, even if it provides death cover only. The only exception to this is if the policy is taken out of the chargeable event rules by any other provision, which is only likely to be the case if the policy was issued in connection with an approved pension scheme – see IPTM7060.

If a group life policy is within the chargeable event rules then it is possible for chargeable event gains to arise on the second and subsequent deaths of individuals insured under the policy and these gains will need to be reported by insurers in the normal way. IPTM7545 explains how such gains might arise.

Definition of a group life policy for tax purposes

A ’group life policy’ is defined at ITTOIA05/S480(2) as a life insurance policy whose terms provide for the payments of benefits on the death of more than one individual and which pays benefits on the death of each of those individuals. So, for instance, a policy which insures the lives of two individuals but only pays benefits on the death of the last of those individuals to die would not be a group life policy.

If a policy starts out as providing under its terms that more than one individual is insured then it will remain a group life policy even if the number of individuals covered dwindles to one. This might be because the other individuals previously insured have died, left the group or otherwise ceased to be eligible for cover, for instance because they have reached a certain age. If it started out as meeting the conditions to be an excepted group life policy and the conditions continue to be met then it will remain an excepted group life policy.

However, adding a group of lives to a policy which previously covered only a single life would not mean that the policy could be treated retrospectively as a group life policy. It is likely that the adding of the lives would be a fundamental reconstruction of the single life policy bringing a new group life policy into existence at that time. This new policy may be an excepted group life policy but it would have to be tested on its own terms against the conditions at ITTOIA05/S481 and S482.