ECJ Judgement and the effect on Discounted Gift Trusts

26 Nov

This article summaries the judgement provided by the Court of Justice of the European Union (ECJ) regarding gender discrimination in relation to insurance premiums and its effect on Discounted Gift Trusts (DGT).

The Decision

On 1 March 2011 the ECJ issued a judgement that stated that the insurance services sector will no longer be able to offer gender specific premiums or benefits from 21 December 2012.

How does this impact Pensions, Annuities and Insurance?

This ruling is expected to affect these areas of financial services and following the 21 December 2012, we will see how this will be embedded into our existing legal framework and processes.

How does this impact DGT valuations?

When calculating the open market value of an income stream to arrive at a discount, HMRC guidance provides the use of certain gender specific mortality tables. HMRC have indicated they will review their guidance to take account of the judgement. However, it is likely that any change would not happen until late 2012. For DGTs declared before any change to the HMRC guidance on valuations, this judgement should have no impact, as the basis of the discount calculated will be relevant as at the date the trust is declared not the date of death of the settlor(s).
 
It should be remembered that the discount is just one factor in deciding whether a DGT is a suitable arrangement as part of your Inheritance Tax planning strategy.

The Rationale for the Judgement


Directive 2004/113/EC prohibits all discrimination based on gender in the access to and supply of goods and services. 

This means that from 21 December 2007 the Directive prohibited the use of gender in the calculation of insurance premiums and benefits. However, the Directive allowed exemptions to Member States regarding the use of gender specific premiums and benefits so long as the Member State ensured that the underlying actuarial and statistical data of which the calculations are based are reliable, regularly updated and available to the public.

The judgement considered if the intention of this exemption was to allow gender specific premiums and benefits to continue indefinitely. The Court concluded this was not the case and that gender specific premiums and benefits works against the achievement of the objective of equal treatment between men and women and therefore it was appropriate to bring this practice to an end.

Concluding that gender specific premiums and benefits would be regarded as invalid with effect from 21 December 2012.

 

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