Manc

Does anyone know if a Life Insurance lump sum death benefit is taxable in the UK?

Thydney

Sorry to be vague but it depends on the amount and who the benficiary is.

Manc

amount
£48,000

beneficiary
My sister and I, named as such, and will not have to go through probate.

policy, through my mum's work. I believe Marks and Spencer paid the premium, and the policy is a "Death in Service Policy"

I know in the US, it wouldn't be taxed, or classed as a part of the estate.

Bob

would think it might also depend on if the money's staying in the UK or not perhaps?

Manc

not if I can help it.

Thydney

As far as I can remember you can leave approx £275k in total to a non spouse without paying IHT. As you have an amount smaller than that you won't pay IHT. Of course you should declare it's receipt on your tax return as you should with all unearned income. BUT I'M NOT AN EXPERT

Manc

no me niether.

just putting the feelers out there.

We have to sell my mums house too, and that might push us close to the IHT threshold.

40% too, cheeky barstewards.

CarlM

Ask the Insurance company or your advisor to write it in trust, and its completely tax free.. not even subject to inheritance tax! Takes 2 minutes to complete the form, anf the benefits automatically are owned by the benficiary. (Subject to the insured person being kind enough to die first)

Otherwise, theres too many variables to give an accurate answer!

Manc

thanks.

scrubbedexpat099

Most Death in Service benefits are linked to the Pension plan. Either way, there is usually the option for your Mum in this case to nominate the benficiary(s) in which case the trustee's would usually pay direct to them, otherwise it goes to the Estate and if the Estate is enough, it would be taxable.

Eskimo

Matt - Just going through this with my Dad , we were told its not taxable if the total estate is under 250k, my understanding is if its not going to probate it doesnt add to the estate.

Thydney

Are you sure you can set up a trust AFTER a death? Setting up a trust to avoid tax may be illegal.

It's only the amount over the IHT threshold that is taxed no all the inheritance

scrubbedexpat099

As I understand it you can not assign the benefits after death, it either goes to a named beneficiary or not.

Often Company Personal Accident benefits go to the Company and they can then pass on the benefits as nominated, or otherwise.

I remeber a case where an employee specified the wife, he worked in the North Sea Oil industry, died in an accident and two 'wives' came forward, one in England, one in Norway!

Group Life schemes are usually different in that the benefit is clearly for the Employee and the Employee has to specify before death if the benefit is to be paid directly to somebody else rather than the Estate.

A quick call to M+S will ascertain where the benefit in this case goes.

Now you can reaarange the will after death if the beneficiaries agree. Often this is used where one spouse leaves their estate to the other, dies and the remaining spouse wants to use the IHT limit to pass some or all the proceeds to other family members.

Term Life is often used for IHT purposes, you 'insure' the tax you have to pay so that you get the full amount.

You have to have an insurable interest to insure somebody elses life, for example the Queen is often Insured by producers of regalia prior to Jubillee's etc, if she dies then all those pots and mugs etc would be worthless.

CarlM

Apologies - hadnt read your post mentioning the policy was already to be claimed. Am a little late with the 'setting up a trust' whizz of an idea!

(Although a term life policy idea to cover Inheritance tax needs to always be written in trust outside of the estate and therefore not subject to IHT)