Whole of Life, CLTs and Surplus Income
Sam_T
Member
Hi all,
We are revisiting some work on WOL and when the premiums become CLTs. Could someone give their thoughts on the following points:
Q1: For a joint whole of life policy, how should the normal expenditure out of income exemption be applied?
- Are premiums assumed to be paid 50/50 between the joint owners by default, such that each individual's share of the premium must be tested against their own surplus income?
- Or, can one party choose to pay more than their share if they have surplus income available?
Q2: For a discretionary trust holding a pure protection whole of life policy, when calculating the value of the trust at a 10-year anniversary, should premiums that qualified for the normal expenditure out of income exemption be included in the 'total premiums paid' valuation? Or are only non-exempt premiums taken into account?
Please could you confirm the correct treatment and the legislative/HMRC basis for that view.
Thinking we will get more of this type of planning with April 2027.
Thanks in advance
Sam
Comments
Hi Sam
For question 1, HMRC will treat each settlor as if they have made their own trust, and will consider the premiums as being shared equally between them unless there is evidence to the contrary. So detailed records will be needed to prove that one settlor is contributing more than the other.
For question 2, assuming the lives assured are in good health, the total premiums paid will be compared against the trust's NRB for the purposes of the periodic charge. Whether the original settlements into the trust were chargeable lifetime transfers or exempt has no bearing. If there is a difference between the proportion of premiums paid by each settlor, the 10 year periodic charge calculation will be different for each 'trust'.
Colin
What Neil said in M&G for Advisers Tech Matters LinkedIn
Thanks both - I think we have it all straightened out now.
Appreciate all the input.