Produced by Tolley
  • 22 Mar 2022 09:46

The following Personal Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Life insurance policies
  • Qualifying policies
  • Definition of a qualifying policy
  • Annual limit on premiums paid under qualifying policies
  • Chargeable events for qualifying policies
  • Non-qualifying policies
  • Taxable income
  • Partial surrenders
  • Partial surrenders in excess of the 5% limit ― recalculation of the chargeable event gain
  • Periods of non-residence
  • More...

Life insurance policies

Life insurance products are used either:

  1. to pay out a sum of money to a beneficiary when someone dies, or

  2. as an investment vehicle to provide a return on an investment in much the same way as other savings-type products (for example, an endowment policy attached to a mortgage)

The tax treatment of these insurance policies depends on whether they are considered to be qualifying or non-qualifying.

In general terms, where the policy is non-qualifying there is anti-avoidance legislation in place to charge any profit made on encashment to income tax rather than capital gains tax. This is different from the normal rules whereby profits on most investment products (eg shares, unit trusts, etc) are chargeable to capital gains tax. To confuse matters, although the profit is charged to income tax rather than capital gains tax, it is normally referred to as a ‘life insurance gain’ or a ‘chargeable event gain’.

The policyholder can defer the income tax charge by partially surrendering the non-qualifying policy (up to certain limits, see below).

This area of the legislation is very complex, however in almost all cases the insurer should do the hard work by producing a certificate showing all the information needed to report the gain on the tax return, including the calculation of the gain.

This guidance note discusses qualifying and non-qualifying policies, the calculation of the chargeable event gain, and the interaction with various provisions. For the taxation of chargeable event gains, including top slicing relief and deficiency relief, see the Life

Access this article and thousands of others like it
free for 7 days with a trial of TolleyGuidance.

There's no margin for error. Think Tax.
Think Tolley.

TolleyGuidance gives you direct access to critical, comprehensive and up-to-date tax information and expertise you can rely on.

TAKE A FREE TRIAL

Popular Articles

Self assessment ― amendments and corrections

Once a self assessment tax return has been filed, both HMRC and the taxpayer (or the agent) has the right to make changes to the return. There are different time limits depending on whether it is a correction by HMRC or an amendment made by the taxpayer.CorrectionHMRC has the right to amend the tax

22 Mar 2022 09:43 | Produced by Tolley Read more Read more

Structures and buildings allowance

What is structures and buildings allowance (SBA)?From 29 October 2018, expenditure on constructing a non-residential building or structure, or in certain cases, expenditure on acquiring such a building or structure, qualifies for an SBA. The following note has been updated for the changes announced

19 May 2022 07:01 | Produced by Tolley Read more Read more

Chargeable lifetime transfers

This guidance note explains how to calculate the amount of tax that arises under the lifetime charge. In general terms the lifetime charge will apply to individuals who transfer property into a trust that is subject to the relevant property regime. See the Chargeable transfers and Occasions of

23 Mar 2022 10:31 | Produced by Tolley Read more Read more