In the first instance the inheritance tax is assessed ignoring the proceeds of the policy. Dermot, Evelyn and Robert each receive 25,000 and -

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1 Section 60 Policies 1. FA Summary of Original Relief 1.1 FA 1985 s 60, grants a concession in relation to the proceeds of life insurance policies which would otherwise be liable to inheritance tax on the death of the insured person. The section provides that the proceeds of any qualifying insurance policy taken out under this section by an insured person on his life will be exempt from inheritance tax insofar as such proceeds are used to pay the inheritance tax arising on the insured person's death, or within a year of his death, under dispositions made by him (for example, under his will). Any part of the proceeds not so used are liable to inheritance tax. 1.2 Andrew Byrne dies in 1989, leaving a net estate of 75,000, not including 6,000, the proceeds of a section 60 policy payable to his personal representatives. By his will he bequeaths the proceeds of the policy to his executor on trust to pay the relevant tax (within the meaning of FA 1985 s 60) arising on his death, any balance of the proceeds to fall into his residuary estate. He bequeaths his residuary estate equally absolutely to his son, Dermot Byrne, to Dermot's wife Evelyn and to Dermot's son Robert. In the first instance the inheritance tax is assessed ignoring the proceeds of the policy. Dermot, Evelyn and Robert each receive 25,000 and - Dermot's tax on 25,000 (threshold amount 150,000) is Nil Evelyn's tax on 25,000 (threshold amount 10,000) is 3,500 Robert's tax on 25,000 (threshold amount 20,000) is 1,000 Evelyn and Robert receive legacies of 3,500 and 1,000 respectively from the proceeds of the policy to pay their tax. Those amounts are not liable to inheritance tax. The balance ( 1,500) of the proceeds of the policy goes equally to Dermot, Evelyn and Robert and is taxed as an inheritance of 500 taken by each of them on the day after Andrew's death. Dermot's tax on 500 is Nil Evelyn's tax on 500 is 150 Dermot's tax on 500 is 100 Criteria for Revenue Approval 1.3 Although the section 60 policy must be in a form approved by the Revenue Commissioners, it is not necessary that they should see each policy when it is issued. However, the following points should be noted: The policy must be effected by under FA 1985 s 60. an insured on his own life and specify that it has been effected The policy must have a ratio of sum assured to annual premium of at least 8:1, or in the case of a policy with a premium loading for medical or other reasons, a ratio of at least 6: While section 60 provides that annual premiums are to be paid, the section will apply to bona fide policies where the premiums are paid, for example, quarterly or monthly, provided that the latter amounts are derivatives of an annual premium, and that the ratios at above are observed Premiums payable under a section 60 policy do not qualify for income tax relief and accordingly life assurance premium certificates should not be issued in respect of such policies An existing policy cannot be converted to a section 60 policy A section 60 policy may be converted to an ordinary life policy and shall qualify for income tax relief (subject to the usual restrictions) from the date of conversion. On conversion, a life assurance premium certificate may be issued indicating that the policy has been converted from a section 60 policy, and the date of conversion.

2 1.3.7 The policy must be a whole of life policy, a whole of life policy with premiums ceasing at a specified age, a term assurance policy or any other policy approved by the Revenue Commissioners. The policy should be of the normal standard type and where appropriate may include clauses relating to early encashment, paid up values and other usual policy conditions The policy may be a "contingent life" policy, that is, a policy in which the proceeds are payable on the death of an insured person provided a named life has predeceased him or her, for example, a policy effected by a wife, the proceeds of which are payable on her death but only provided her husband has predeceased her A policy will be a qualifying insurance policy if it is effected by an "employee" of a company on his own life and: (i) the premiums, though paid by the "employer", are a benefit in kind chargeable to income tax in the hands of the "employee", and included in his income tax return, and (ii) no deduction is claimed for income tax purposes by the "employee" in respect of those premiums. Intention should be Specified 1.4 The insured person should normally specify how the proceeds of the policy are to be dealt with if his wishes in this regard are not met. For example, a person dies and by will bequeaths his entire estate, including the proceeds of a section 60 policy payable to his personal representatives, to his son absolutely. That deceased person is also a joint-tenant with his brother of a house, a half-share of which passes by survivorship to that brother on the death. The son and brother are liable to inheritance tax on their inheritances but the proceeds of the policy, owned by the son under the terms of his father's will, are not available to pay the brother's tax. If it was the deceased person's intention that the proceeds of the policy should be used to pay all "relevant tax" on his death, he should have provided accordingly in his will (see the example in 1.2 above). 1.5 The distribution of the proceeds of the policy might also be arranged by issuing the policy under a trust with an appropriate trust instrument specifying whether all or merely some of the successors on the insured person's death are to benefit from the proceeds of the policy. 1.6 Whether the distribution of the proceeds of a policy is dealt with by will or by trust, it would be prudent also to indicate the proportions in which the proceeds are to be distributed in case such proceeds, on the insured person's death, are found to be insufficient to pay all "relevant tax". 2. FA Joint Lives and Survivor Policies 2.1 FA 1985 s 60, originally applied only to policies effected on a single life. However FA 1989 s 84, extended the provisions of section 60 policies where: (a) the insured is an individual and the spouse of that individual, (b) annual premiums are paid by either or both of them during their joint lives, and by the survivor during the life of the survivor, and (c) the proceeds of the policy are payable on the death of such survivor, or on the simultaneous deaths of both such spouses. 2.2 Michael Moran and his wife, Patricia, effect a policy under the provisions of section 60, the proceeds to be payable on the death of the survivor of them to the personal representative of that survivor. Michael pays all the premiums during his lifetime. Michael dies and by will bequeaths his entire estate to Patricia absolutely. No inheritance tax is payable on this inheritance between spouses. (FA 1985 s 59) The policy does not mature on Michael's death and, from his death, Patricia pays the premiums. Caution 2.3 If, in the above example, inheritance tax did arise on the death of Michael under a disposition made by him, the proceeds of section 60 policy would not be available to pay that tax. 3. FA Extension and Relief

3 3.1 FA 1990 s 130, further extended the provisions of section 60 in respect of the: (a) "joint lives and survivor" policies in the names of two spouses referred to in 2.1 above, and (b) "contingent life" policies referred to in above, where the policy is effected by an individual but the proceeds are payable on that individual's death only if the individual survives his or her spouse. The effect of this new section may be illustrated by two examples. 3.2 Brendan Fagan bequeaths his estate to his wife, Mary, for life with remainder to their son, William, absolutely. No inheritance tax is payable on Brendan's death in respect of Mary's inheritance (FA 1985 s 59). Heretofore, a "joint lives and survivor" or a "contingent life" policy payable on Mary's death would not have been available to pay the inheritance tax payable by William on her death, the reason being that William takes his inheritance under a disposition made by Brendan and not by Mary. However, FA 1990 s 130 now provides that the proceeds of such a policy, payable on Mary's death, are available to pay William's tax. 3.3 Edward Hanrahan bequeaths his estate absolutely to his wife, Joan, but should she not survive him by 30 days, he bequeaths his estate absolutely to his son, Vincent. Edward and Joan are involved in a car accident. Edward dies immediately and Joan dies 10 days later. Vincent takes Edward's estate absolutely under the terms of the will. Heretofore, a "joint lives and survivor" or a "contingent life" policy payable on Joan's death would not have been available to pay the inheritance tax payable by Vincent, the reason again being that Vincent takes his inheritance under a disposition made by Edward and not by Joan. FA 1990 s 130 now provides that the proceeds of such a policy, payable on Joan's death, are available to pay Vincent's tax. Reminder 3.4 s 3.2 and 3.3 above show that the proceeds of a section 60 policy may be payable on the death of a surviving spouse, but that the inheritance tax which may now be paid with the proceeds may arise under dispositions made by that spouse and by the predeceased spouse. This highlights how necessary it is that the will of the surviving spouse, or a trust instrument, whichever method is chosen, should specify how the proceeds of the policy are to be dealt with (see 8.2 to 8.4 below). 4. FA Further Extension of the Relief 4.1 FA 1991 s 118 further extended the provisions of FA 1985 s 60 to allow a life tenant to effect a single life section 60 policy to provide for the inheritance tax arising on his or her death under a disposition made by his or her spouse. It extends the definition of "relevant tax" to include inheritance tax arising under a disposition made by the spouse of the insured where the inheritance is taken on the death of the insured. The relief differs from that introduced by FA 1990 s 130 as that relief would have allowed a husband and wife, when both were alive, to effect a joint life last survivor policy to cover inheritance tax payable on the death of the survivor, who had a life interest in the property. 4.2 William O'Connor bequeaths his estate to his wife Catherine for life, with remainder to their son George absolutely. The inheritance tax arising on Catherine's death arises under a disposition made by William and Catherine cannot insure against it. FA 1991 s 118 extends the definition of "relevant tax" to include inheritance tax payable in the above situation. So if Catherine takes out a qualifying policy the proceeds can be used, on her death, to pay the inheritance tax arising under William's disposition, or under a disposition made by Catherine herself. 5. Section 119 Policies

4 FA Summary of the Relief 5.1 FA 1991 s 119 introduced a concession in relation to certain policies of insurance when the proceeds of these policies are used to pay gift tax (or inheritance tax) arising in connection with a gift made by the insured. It exempts from gift tax the proceeds of an approved policy to the extent that the proceeds are used to pay gift tax (or inheritance tax) on a gift made by the insured within one year of the proceeds of the policy becoming payable. It will enable people to make provision for an anticipated future liability to gift tax. It is intended that there should be a minimum funding period of eight years. However, the proceeds can be used at any time during this eight year period if the insured dies or become critically ill. As regards the "appointed date" it is not necessary to set this date in advance. More than one benefit may be drawn from a policy, ie, there can be more than one "appointed date" in relation to a policy. 5.2 FA 1991 s 119 is a separate relief additional to FA 1985 s 60 relief. FA 1985 s 60 applies mainly to inheritance tax while FA 1991 s 119 applies mainly to gift tax. However, to allow for maximum flexibility there is an interchangeability between the two reliefs A section 60 policy will qualify as a section 119 policy in the following two situations: (a) where the policy has an early encashment clause the proceeds can be used to pay "relevant tax" as defined in FA 1991 s 119, and qualify for exemption, provided that the date on which the proceeds become payable is at least eight years after the date on which the policy was effected; (b) where the policy has a "critical illness" clause and the insurer admits the claim the proceeds can be used to pay "relevant tax" and qualify for exemption A section 119 policy will qualify as a section 60 policy where the proceeds become payable on the death of the insured, provided that the policy had a ratio of sum assured to annual premium of at least 8:1 or in the case of a policy with a premium loading for medical, health or occupational reasons, a ratio of at least 6:1 (the sum assured being net of any debt due on that sum). 6. Criteria for Revenue Approval for Policies Issued on or after 29 May In sections 6 and 7 of these notes unless indicated to the contrary: "qualifying insurance policy" means a policy expressly effected under the provisions of FA 1985 s 60; "relevant insurance policy" means a policy expressly effected under the provisions of FA 1991 s 119; "policy" or "policies" means either a qualifying insurance policy or a relevant insurance policy or both; "ordinary life policy" means a policy not expressly effected as either a qualifying insurance policy or a relevant insurance policy; "insured" means an individual, or in the case of a joint life, first death policy or of a joint life, last survivor policy or of a contingent life policy, an individual and the spouse of that individual at the date the policy is effected, jointly or separately; "net premium" means the annual premium paid by the insured in any continuous twelve month period less any benefit received from the policy, either as a total or partial encashment of the rights or interest under the policy or as a loan from the insurer secured under that policy, other than a benefit payable under the policy as a consequence of the death of the insured or a critical illness claim or as a waiver of premium claim or as a benefit which is used to pay "relevant tax"; "paid" takes into account the normal "days of grace" allowed in practice by the insurance industry. 6.2 Although a policy must be in a form approved by the Revenue Commissioners, it is not necessary that they should see each policy when it is issued. However, the following points should be noted: The policy must be effected by an insured on his own life or, where the insured is an individual and the spouse of that individual, by the individual and the spouse of that individual in accordance with FA 1989 s 84 or FA 1991 s 119, as appropriate. The policy may be a "contingent life" policy where the proceeds are payable on the death of an insured person provided the spouse of the insured has predeceased him or her.

5 6.2.2 The policy must specify that it has been effected under FA 1985 s 60 or FA 1991 s 119, as appropriate A section 60 policy must have a ratio of sum assured to annual premium of at least 8:1, or in the case of a policy with a premium loading for medical, health or occupational reasons, a ratio of at least 6:1. These ratios must be maintained throughout the life of the policy and the sum assured must be net of any debt due on such sum Premiums under a section 119 policy must be paid annually for a minimum period of eight years If the term of the policy runs from a date earlier, but not more than three months earlier, then the date on which the policy is effected the insurance shall be treated as having been effected on that date and any premium paid in respect of the period before the insurance is effected or in respect of that period and a subsequent period shall be treated as having been payable on that date A policy must be a whole of life policy, a whole of life policy with premiums ceasing at a specified age, an endowment assurance policy, a term assurance policy or any other policy approved by the Revenue Commissioners. The policy should be of the normal standard type and where appropriate may include clauses relating to early encashment, paid up values and other usual policy conditions A policy will be a qualifying insurance policy or a relevant insurance policy if it is effected by an insured who is an "employee" of a company and: (a) the premiums, though paid by the "employer" are a benefit in kind chargeable to income tax in the hands of the insured, and included in his income tax returns; and (b) no deduction is claimed for income tax purposes by the insured in respect of those premiums While FA 1985 s 60 and FA 1991 s 119 specify that annual premiums are to be paid by the insured, this requirement will be met where, for bona fide policies, the premiums are paid, for example, quarterly or monthly, provided the latter amounts are derivatives of an annual premium Annual premiums payable under a policy do not qualify for income tax relief and accordingly life assurance premium certificates should not be issued in respect of such policies An annual premium in respect of a policy will be deemed to be paid by the insured where the p remium is waived by the insurer as a benefit under the policy in the event of the insured being unable to follow his or her own remunerative occupation due to sickness or disability An ordinary life policy cannot be converted to a qualifying insurance policy or a relevant in surance policy A section 60 policy or a section 119 policy may be converted to an ordinary life policy and shall qualify for income tax relief (subject to the usual restrictions) from the date of conversion. On conversion, a life assurance premium certificate may be issued indicating that the policy has been converted and the date of conversion If annual premiums cease to be paid no further premium may be added The "appointed date" may be determined by payment of the proceeds of a policy on the "critical illness" benefit. This is a benefit payable under a policy in the event of the insurer admitting a claim, in accordance with the policy conditions, that the insured has contracted or undergone a life threatening illness or disability, such as: (a) heart attack, (b) coronary artery disease surgery, (c) stroke, (d) cancer, (e) paralysis, (f) major organ transplantation, (g) multiple sclerosis,

6 (h) kidney failure, or (i) permanent or total disablement. P ayment on the occurrence of a "critical illness" is an acceleration of the death benefit. The sum paid will not qualify for the relief if it is merely the payment of a surrender value or even, for example, payment of say 101 per cent of the bid value of the units A policy will immediately cease to be in a form approved by the Revenue Commissioners for the purposes of FA 1985 s 60 or FA 1991 s 119 on the earlier occurrence of any of the following: (a) annual premiums in respect of a policy cease to be paid by the insured before a period of eight years expires, from the date the policy is effected, save where premiums cease to be paid by the insured as a result of a benefit becoming payable under the policy on the critical illness or death of the insured; or (b) during any continuous eight year period of the policy, throughout which annual premiums are paid by the insured, the net premium paid in any continuous twelve month period is less than half the net premium paid in any other continuous twelve month period; or (c) before a period of eight years expires, from the date the policy is effected, the net premium paid in any continuous twelve month period is less than half the annual premium paid in the first continuous twelve month period of the policy. 7. Policies Issued before 29 May Cessation of Approved Status 7.1 A policy, issued before 29 May 1991, will immediately cease to be in a form approved by the Revenue Commissioners for the purposes of FA 1985 s 60 or FA 1991 s 119 on the earlier occurrence on or after 29 May 1991 of any of the following: (a) annual premiums in respect of a policy cease to be paid by the insured before a period of eight years expires from the date the policy is effected, save where premiums cease to be paid by the insured as a result of a benefit becoming payable under the policy on the critical illness or death of the insured, in accordance with the policy conditions; or (b) during any continuous eight year period of the policy throughout which annual premiums are paid by the insured, the net premium paid in any continuous twelve month period after 29 May 1991 is less than half the net premium paid in any other continuous twelve month period. 8. Caution 8.1 Where it is intended to use the proceeds of a relevant insurance policy or a qualifying insurance policy to pay gift tax it is recommended that the gift be made as soon as possible after the proceeds become payable. Although the act provides that the gift can be made at any time during the following year, the insured runs the risk that if he/she dies before making the gift the exemption will be lost. In such circumstances the proceeds would not have been used to pay "relevant tax" and they cannot be used to pay inheritance tax as they did not become payable on the death of the insured. 8.2 The insured person should normally specify how the proceeds of the policy are to be dealt with if his wishes in this regard are to be met. For example, a person dies and by will bequeaths his entire estate, including the proceeds of a section 60 policy payable to his personal representatives, to his son absolutely. That deceased person is also a joint-tenant with his brother of a house, a half-share of which passes by survivorship to that brother on the death. The son and brother are liable to inheritance tax on their inheritances but the proceeds of the policy, owned by the son under the terms of his father's will, are not available to pay the brother's tax. If it was the deceased person's intention that the proceeds of the policy should be used to pay all "relevant tax" on his death, he should have provided accordingly in his will (see the example in 1.2 above). 8.3 The distribution of the proceeds might also be arranged by issuing the policy under a trust with an appropriate trust instrument specifying whether all or merely some of the successors on the insured person's death are to benefit from the proceeds of the policy. 8.4 Whether the distribution of the proceeds of a policy is dealt with by will or by trust, it would be prudent also to indicate the proportions in which the proceeds are to be distributed in case such proceeds, on the insured person's death, are found to be insufficient to pay all "relevant tax".