SolvedIHTM20155 | Life Policies: trusts of life policies: policy settled on its own trusts: examples (Scotland)
From HM Revenue & Customs · Inheritance Tax Manual
The law is different in Scotland, and the following 6 examples apply there.
Example 1
If Sandra settles a policy on her life
for the benefit of Alex for life with remainder to Brian -
Alex has an interest in possession.
Example 2
If Sandra settled a policy on her life
for the benefit of Alex whom failing for Brian
During the joint survival of Sandra and Alex no interest in possession subsists in the policy with the result that ten yearly charges may arise under IHTA84/S64. A charge will arise under IHTA84/S65 if Alex survives Sandra when the policy will vest in him or if he dies before Sandra when the policy will vest in Brian. No claim can arise in connection with Brian’s death unless Alex has predeceased him.
Example 3
If Sandra settles a policy on her life
for the benefit of such of Alex, Brian and Carol as Sandra appoints and in default for Dennis -
During Sandra’s lifetime no interest in possession will subsist in the policy unless and until she appoints it absolutely in Alex or Brian or Carol (or any combination of them) by exercising their power irrevocably. Short of that, ten yearly charges will arise from time to time and no claims will arise on the deaths of Alex, Brain, Carol and Dennis. As and when the policy vests absolutely ( on the death of Sandra without having appointed irrevocably to Alex or Brian or Carol, or in their lifetime if she exercises her power irrevocably, as above) a claim will arise under S65. No claim arises on the death of Alex or Brian or Carol in Sandra’s lifetime unless she has appointed irrevocably and absolutely to the beneficiary who has died. Dennis’s death during Sandra’s lifetime gives rise to no claim.
Example 4
If Sandra settles a policy on her life
for the benefit of Alex and if this fails, for Sandra -
No interest in possession subsists while both survive. Ten yearly charges may arise. On the death of the first to die of Alex or Sandra a claim will arise under IHTA84/S65.
Example 5
If Sandra settles a policy on her life
for the benefit of such of Alex, Brian and Carol as survive Sandra and, if none, for the benefit of the last to die
During Sandra’s lifetime no interest in possession will subsist so long as at least 2 of the beneficiaries survive and ten yearly charges will arise. A claim will arise under IHTA84/S65
on the death of the second beneficiary to die during Sandra’s lifetime; or
on Sandra’s death if more than one beneficiary survives her.
If all the beneficiaries die before Sandra, the policy will be an asset in the estate of the last of them to die.
Example 6
If Sandra settles a policy on her life
for the benefit of such of Alex, Brian and Carol as survive Sandra or attain the age of 21 and, if none, then for the benefit of the last to die
IHTA84/S71 applies.