Statement of Practice 6 (1992)
Published 3 July 1992
© Crown copyright 1992
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1. HM Revenue and Customs (HMRC) take the view that certain accident insurance policies which provide protection only, and no investment element, do not give rise to chargeable ‘gains’.
Relevant legislation
2. Liability to tax may arise on the occurrence of a chargeable event in connection with a policy of life insurance. The rules are at Chapter II. Part XIII, Income and Corporation Taxes Act (ICTA) 1988. ‘Chargeable event’ and the ‘gain’ to be taxed are defined at sections 540 and 541 ICTA respectively. The meaning of ‘policy of life insurance’ is determined from general law and decisions of the courts.
Present practice
3. Until now, HMRC have taken the view that the term ‘policy of life insurance’ included an accident insurance policy providing cover against dying as a result of an accident. On that view, a taxable ‘gain’ may arise in connection with an accident insurance policy.
New practice
4. HMRC now take the view that an accident insurance policy which provides protection only should not be regarded as a policy of life insurance when applying the rules at Chapter II, Part XIII, ICTA 1988. Taxable ‘gains’ will not therefore be treated as arising in connection with an accident insurance policy which:
- (a) affords protection against the risk of dying only if death is as a result of an accident and
- (b) has no investment content and
- (c) does not acquire a surrender value (other than one equal to a proportion of the premium paid which is refundable if the policy is terminated early or in other circumstances)
5. The accident insurance policies to which this practice will apply are those written as:
- (a) ‘Contracts of general insurance’ of an insurance company or a friendly society or members of Lloyd’s within paragraph 1 Schedule 1, Part 1 of the Financial Services Markets Act 2000 (Regulated Activities) Order 2001 or
- (b) similar protection only policies written by non-resident insurers
Commencement
6. This Statement of Practice will be applied in settling any tax liability which is not final at the date of issue of this statement. The statutory references applicable for the past are those from which the current provisions are derived.
Background
7. Some group life policies will be taken outside of the scope of the chargeable event rules if they fall within any of the exclusions in section 539(2) ICTA 1988. These are policies which are issued in connection with approved retirement benefit scheme or retirement annuity contracts, policies which meet the conditions in section 539A to be excepted group life policy and certain loan protection policies taken out by credit unions. But if a group life policy which is not within these exclusions gives rise to more than 1 death benefit then some mortality benefits come into the computation of the gain. This is a result of the rule dealing with partial surrenders of the rights conferred by a policy. Benefits, including death benefits, paid at any time prior to the ‘chargeable event’ in question are included when computing ‘gain’.
8. The rules make no special provision for group life insurance policies (although some, issued in connection with approved retirement benefit schemes or retirement annuity contracts, are completely outside the scope of the charge under the general exclusion for certain policies of insurance at section 539(2) ICTA 1988. If a group life insurance policy gives rise to more than 1 death benefit some mortality benefits come into the computation of gain. This is a result of the rule dealing with partial surrenders of the rights conferred by a policy. Benefits, including death benefits, paid at any time prior to the ‘chargeable event’ in question are included when computing a ‘gain’.
Other points
9. An accident insurance policy which provides cover against disablement only (not death) as a result of an accident has never been considered to be a policy of life insurance. The tax treatment of disability benefits from such a policy is not affected therefore by the new practice.
10. Policy benefits may be otherwise chargeable to tax, for example, as receipts of a trade or profession. Any such charge is unaffected by this Statement of Practice which is concerned only with the application of the chargeable events legislation at Chapter II, part XIII, ICTA 1988.
Note: this statement was revised in August 2005.