CII R05 UK Tax Treatment of Protection Policies 2

Question 1

How is a death-in-service lump sum benefit (under a registered group life scheme) treated for inheritance tax purposes?

Accepted Answer

It is written in trust so it falls outside the estate and is free of IHT

Answer

Group life schemes registered under the Finance Act 2004 are held in discretionary trust by trustees. Payments are therefore made outside the deceased's estate and are not subject to inheritance tax.

Question 2

A self-employed individual pays income protection premiums. Can they claim tax relief on these premiums?

Accepted Answer

No, personal income protection premiums are not tax deductible for self-employed individuals

Answer

Personal income protection insurance premiums are not tax deductible for self-employed individuals. They are treated as a personal, non-business expense regardless of employment status.

Question 3

What is the inheritance tax position of a life assurance policy written in trust?

Accepted Answer

It falls outside the estate and is not subject to IHT

Answer

A life assurance policy written in trust means the benefit is owned by the trust, not the policyholder. On death, the proceeds go directly to the beneficiaries without passing through the estate, so they are outside the scope of IHT.

Question 4

Which of the following statements about P11D benefits relating to protection policies is correct?

Accepted Answer

Employer-paid group private medical insurance premiums are a P11D benefit in kind

Answer

Employer-paid group private medical insurance (PMI) premiums are a taxable benefit in kind, reported on a P11D form. Group life and group income protection are not treated as benefits in kind for employees.

Question 5

If a life assurance policy is not written in trust and the policyholder dies, what happens to the proceeds?

Accepted Answer

They form part of the deceased's estate and may be subject to inheritance tax

Answer

If a life policy is not written in trust, the proceeds form part of the policyholder's estate on death. If the total estate exceeds the nil-rate band (currently £325,000), the excess is subject to inheritance tax at 40%.

CII R05 Practice Test

CII R05 Practice Test

CII R05 UK Tax Treatment of Protection Policies 2