The change will come into effect in December 2012, although earlier reaction by the insurance industry is a real possibility. At first glance this ruling should have little impact on the offshore world since very few providers offer risk based policies in the European market.
However, is there going to be any impact in the area of inheritance tax (IHT) planning? Over the years offshore insurance companies have developed IHT plans as a core part of their offering to UK clients.
Almost all of them offer Discounted Gift Trusts which provide for an immediate ‘discount’ on the value of a gift.
These plans provide the settlor with a stream of payments during their lifetime in the form of an income with the residuary amount passing to their beneficiaries after the settlor’s death.
The ‘discount’ is calculated as the open market value of that income stream. The calculation of the open market value involves a hypothetical sale between a willing buyer and willing seller. The buyer will want to know the mortality risk of the seller, which is based on age, health and of course gender – which is why these schemes are underwritten.
However, one may argue that the buyer is concerned primarily with the actual mortality risk, and this risk won’t be affected by the gender directive – mortality risk is expected to continue to be greater among men than in women irrespective of how much they pay for life cover.
We will have to wait with interest to see what HMRC guidance follows the ECJ ruling.
