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26 June 2009

Long Overdue Life Settlement IRS Ruling Dogged By Ambiguity

SL advises all Life Settlement investors to check the implications

SL - a global leader in traded endowment and life settlement based investments - is advising all of its clients to regard IRS ruling 2009-14 as applying to all types of Life Settlements, and cautions against assuming the ruling applies only to 'term' policies.

The US Internal Revenue Service has issued a long awaited ruling on the treatment of 'Withholding Tax' (WHT) on 'stranger owned' life insurance policies - IRS ruling 2009-14. This now confirms that WHT will apply to the profits on policies that mature. Profits are defined as the death benefit less purchase cost less premiums paid and the potential tax charge is 30%. The exact treatment and classification of the tax depends on whether the policy is held to maturity, or sold by the secondary holder.

Ambiguity still exists because Ruling 2009-14 refers only to policies with no cash value, whereas many Life Settlements policies held by investors do in fact have a cash value at some time prior to maturity. This 'will it or won't it' question has dogged the Life Settlement industry for years.

Patrick McAdams, Investment Director at SL, commented:

"This is the ruling the industry has been anticipating for a number of years but unfortunately it lacks clarity. Our investment approach is based on a robust and cautious approach designed to deliver maximum value to investors in Life Settlements. Therefore we believe it appropriate to assume that the ruling will apply to all types of Life Settlements policies".

Patrick added: "Our flagship Life settlement fund, "Life Plus" is purpose built to ensure that eligible investors will not be liable to WHT, irrespective of the lack of clarity in ruling 2009-14.  Life Plus is a Luxemburg based FCP managed by our own Luxemburg fund management subsidiary, and takes advantage of double tax treaties and the unique structure of the fund to ensure that eligible investors will not have WHT deducted.  Life Plus is currently delivering double digit returns as a result of maturities not being subject to WHT either now or on a retrospective basis."