Life Assurance Bonds – An Introduction to the Taxation Aspects for the Estate Practitioner

 In Finance & Investments

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Information in this article should not be taken or relied upon as personal financial advice. Any individual requiring information or advice on their own specific circumstances or on their own account should contact a suitably qualified professional.



Life assurance bonds are assets found in more and more estates, having been heavily sold by financial advisers, especially banks, during the last 10 or 15 years. In some cases they will be a simple investment held by the deceased, but more competent financial planners and tax advisers may have used life assurance bonds and their cousins, capital redemption bonds, with specific forms of trust.

Such bonds may have been issued in the UK or offshore. The range of possible situations that the practitioner might come across is wide enough to justify breaking down the tax treatment and other related issues into a series of articles, of which this is the first.

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As a start, it is perhaps useful to actually define the thing we are discussing. A life assurance bond (LAB) is a non-qualifying life assurance policy funded by a single premium (possibly topped up with further single premiums). The policy will have only a nominal amount of life assurance, usually 101% of the capital value of the investment, but a few policies do have extra life assurance built in.

Whoever sets up the bond (the policyholder) will own it initially and of course that may never change. Trustees may be the initial policyholders or have received a bond by way of assignment or gift. Bonds can be assigned by deed like all similar assets.


LABs will be issued with lives assured, frequently more than one, and the capital will be paid back as a claim on the death of the last life assured. Very rarely does death of the first life assured result in an automatic claim. The lives assured may not be the policyholders, although the usual common law requirement to have an “insurable interest” will mean that there is generally an obvious financial link between the policyholder(s) and the life/lives assured.


Plans may be surrendered by the owner at any time, frequently in parts, or segments (something that is an important option in tax planning), but this option is unlikely to be something that an estate practitioner needs to deal with. However it may sometimes be necessary to check back to see if an original investment has been partially surrendered or assigned as this activity could be associated with transfers for IHT purposes.

Capital Redemption Bonds

Capital Redemption Bonds (CRBs) are something of an historic anomaly and only issued by a small number of offshore life offices. They differ from life assurance bonds for practical purposes only in that there will be no lives assured or sum insured – there is no death benefit as such. This type of structure is useful to financial planners when there is a difficulty identifying or more likely dealing with younger family members who might otherwise have been named as lives assured.

For the purposes of this series of articles, references to LABs can be taken as extending to CRBs as well, and variations will be identified as necessary in the comments.

The next article will look at the treatment of simple LABs where the policyholder’s estate is being administered.

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