Commentary

E1.452CA Life insurance gains—restricted relief qualifying policies: reduction of gain

Personal and employment tax

E1.452CA Life insurance gains—restricted relief qualifying policies: reduction of gain

E1.452CA Life insurance gains—restricted relief qualifying policies: reduction of gain

Following the introduction of a limit to the premiums that may be paid into a qualifying policy with effect from 6 April 2013, under certain circumstances existing policies may become non-qualifying or restricted relief qualifying policies (see E1.443 and Division E1.13). Such policies no longer benefit from the disregards of otherwise chargeable events described in E1.451A. In the case of a restricted relief qualifying policy, any gain brought into charge through the disapplication of these disregards is reduced (and may be further reduced through non-residence in the UK — see E1.452D)1.

The formula for this reduction is straightforward, although the delineation of its terms is not. The reduction of the gain is given by the proportion that the allowable premiums (defined below) payable during the policy period (defined below) bears to the total amount of premiums payable during that period (with certain amounts to be ignored — see below). The legislation expresses this by providing for the gain to be reduced by the result of the formula2:

where G is the amount of the gain, TAP is the total of allowable premiums and TP is the overall total of premiums.

As will be seen below, the intention seems to be to limit the amount brought in to charge to the proportion of the gain relating to premiums payable after the change to restricted relief status and thereafter to the extent that the premium limit is exceeded.

Determining the policy period

The policy period is

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