Readers’ forum: Tax treatment of encashment of life insurance bond

Peter died in 2017 leaving his entire estate to a trust of which his wife Clara was the life tenant and his two adult nephews Fred and George the beneficiaries. Clara died in January 2022 leaving no assets of her own. At her death the trust ceased and the assets are to be equally split by the nephews (based on the amounts involved no IHT liability is anticipated).

Peter and Clara were both UK resident and domiciled but Fred and George have always lived in France where they are tax residents. Peter’s estate solely comprised of £150 000 in cash with which the trustees acquired a life insurance bond from a UK provider shortly after Peter’s death.

The bond insured on the lives of Fred and George was last month encashed for £185 000 and with the surrender being a ‘chargeable event’ (under...