While there is no certainty as to how HMRC could interpret this, there are several possible issues that could occur.

• They could interpret the overpayment as a gift by the survivors, which could be subject to IHT if one of them died within seven years.
• They could treat the overpayment as a gain by the beneficiaries, leading to a capital gains tax charge.
• They might consider the arrangement as non-commercial, resulting in the policy being treated as a gift with reservation.

Gregor Sked is senior protection development and technical manager at Royal London