Hi, I'm hoping someone has knowledge of how taxes work if you collect on a UK life insurance policy whilst living in the US (with no residence in the UK).
My husband and I are Americans that lived in the UK for several years, and moved back to the States for good a couple of years ago. We had purchased a life insurance policy before my husband turned 40 while in the UK from Aviva (they let you keep the policy when you move to another country as long as you continue to pay the premiums from a UK bank account, which we do).
We are mulling over whether to cancel this policy and just get one in the US (which I think would be easier to deal with should I ever need to collect on it, and I think it less likely we would run into a problem where the insurer finds some loophole to deny payment -- which hopefully wouldn't happen as I have been assured by Aviva that all is fine). However, I don't know how taxation would work, and the rep at Aviva didn't know, either.
From what I understand, in the UK you are not taxed on up to £325,000 pounds, but the overage is taxed at 40% (our policy is for £500,000). I saw something online to the effect that the non-taxable amount can actually double by the deceased spouse basically transferring his allowance to his spouse, BUT this only applies if you have a permanent UK residence. My husband thinks that since we don't live in the UK, we won't be subject to any tax at all anyhow (but he bases this on assumption).
Also, would there be any US tax ramifications?
To buy a policy in the US now (with my husband a few years older) which gives about $90,000 *less* coverage than our UK policy by today's exchange rate would cost $26 *more* per month. Which is why it's better to keep the UK policy unless it will cause a lot of problems. Can anyone offer some insight?
