11 Jul 2016
In recent years Excepted Group Life Policies have become more popular and as such the following may be useful in order to provide a basic comparison between these and the traditional Registered Group Life schemes. It is not meant to be exhaustive and is based on our current understanding of legislation which can change without notice. It is not a recommendation for changing any existing arrangements and professional advice should always be sought prior to making any changes to any such arrangements.
| Registered Group Life Scheme | Excepted Group Life Policy | |
| Basic requirements | Established using a trust deed and then registered with HM Revenue & Customs
Once registered, a Group Life Assurance policy is set up |
A Discretionary Trust deed is established the only asset of which will be the excepted group life policy
The policy must meet certain conditions to qualify as an excepted policy which are: – A minimum of 2 lives must be covered – Tax avoidance is not the main purpose or not one of the main purposes, for which a person is at any time: a) A holder of the policy, or |
| Minimum number of lives at outset | 2 | 2 |
| Who can be covered? | – Employees of an employer
– Equity partners if the partnership also has employees that are covered |
Anyone can be included but often insurance companies require a link via employment or partnerships |
| What benefits can be provided? | A lump sum and/or dependant’s pension payable on death only | A lump sum only which must be the same for all members, payable on death only |
| Lifetime allowance (LTA) charge | – Lump sum and retirement pensions paid are assessed against the LTA
– Benefits that exceed the LTA are subject to a tax charge – Death in service pensions do not count towards the LTA nor are assessed against the LTA |
The LTA does not apply |
| Income tax | – Lump sum benefits are not subject to income tax
– Dependents pensions treated as earned income |
Lump sum benefits are not subject to income tax |
| Inheritance tax | Benefits are not subject to Inheritance Tax | Schemes are subject to the normal inheritance tax rules that apply to discretionary trusts further details of which can be provided on request |
| Protection from the LTA | Protection may be lost in certain circumstances eg if a relevant benefit accrual is made in a registered pension scheme or if an individual joins a new registered pension scheme. Different rules apply for each form of protection further details of which can be provided on request | Membership of an excepted policy has no affect protection |
| Tax avoidance | Not applicable as schemes obtain tax privileges through registration | Tax avoidance must not be the main purpose, or one of the main purposes, for the policyholder or one of the persons entitled to benefits under the policy |
