Where you provide a life assurance scheme, you should ask employees to complete a death benefit expression of wishes form to enable them to set out their wishes in relation to the lump sum death in service benefits payable under the scheme. An expression of wishes, rather than an automatic nomination, ensures that inheritance tax (IHT) won’t be payable on the sum.
Life assurance scheme
If you provide a life assurance scheme, it will typically provide a lump sum death benefit equivalent to a multiple of the employee’s basic annual salary (usually two to four times basic salary) which is payable to the employee’s beneficiaries in the event of their death in service. Death in service doesn’t mean they have to physically die at their desk, but death has to take place whilst still employed by the Company. Following death, the trustees of the scheme will receive the lump sum payment from the scheme provider and then pay it over to the beneficiaries.
Tax issues
There are two ways of providing a death benefit; either it’s:
Our Death Benefit Expression of Wishes Form uses the second option - this is the most common as it ensures an IHT exemption. The death benefit must be paid within two years of the trustees learning of the employee’s death, otherwise a tax charge will be payable.
Death benefit form
Our form enables the employee to include as many people as they like and to specify the percentage share of the total lump sum that they would like each beneficiary to receive. It also makes clear it should be used not only to nominate beneficiaries for the first time but also to change an existing nomination, for example where the employee’s personal circumstances have changed. In the latter case, any previous nominations would then be cancelled in favour of the new one.