Is the settlor of the business trust subject to pre-owned assets tax?
For protection policies only. This information is for intermediaries only. It mustn't be distributed to, or relied on by, customers.22 November 2019
As the settlor is a beneficiary under the business trust, there's a risk of a pre-owned assets tax charge if the policy has a value on 6 April in any year. A protection policy with no investment content generally has no or a low market value. Where the insured person is in bad health, which makes the policy worthwhile owning, a small market does exist to trade this type of policy. So it should be possible to arrive at a market value, however difficult this may prove in practice.
Therefore, if the settlor is in poor health in the run-up to 6 April, the trustees can remove them from the class of beneficiaries by Deed of removal of beneficiaries by trustees(Opens new window). This will prevent a pre-owned asset tax charge applying.
This information is based on our understanding of current taxation law and HM Revenue & Customs (HMRC) practice, which may change.
Trusts establish legal rights and entitlements and might have material financial and tax implications for the settlor, trustees and beneficiaries. Aegon UK isn't authorised to provide legal advice, so you should take your own legal advice before setting up a trust, to make sure that it meets your clients' requirements. Our trusts have been drafted for use by UK domiciled individuals.