CG69001 - Insurance: Chargeable Events legislation
The `Chargeable Events' legislation, see IPTM3000+, takes priority over the charge to Capital Gains Tax, because TCGA92/S37 results in the disposal consideration only being taken into account for Capital Gains Tax purposes to the extent that it is not charged to Income Tax as income of the person making the disposal. Sums received under policies of life insurance, contracts for life annuities and capital redemption policies may be taxable under the Chargeable Events legislation. The charge arises on `Chargeable Event Gains', which are calculated broadly as the difference between the premiums paid and benefits received. Chargeable Event Gains are liable to Income Tax. The Chargeable Event measure of gains is not the same as the Capital Gains Tax measure.
IPTM3500+ explains the basis of computation of Chargeable Event Gains. See CG69061+ for the computation of the gain or loss accruing on a disposal of the rights conferred by a life insurance or other contract when the disposal also gives rise to a Chargeable Event Gain.
Certain regular premium policies held for 10 years or more, called 'qualifying policies', do not normally give rise to Chargeable Event Gains whether or not they are still owned by the person who took out the policy. A mortgage endowment policy is a typical example of a qualifying policy. Capital Gains Tax arises most commonly on qualifying policies which have been sold by the original owner and indeed there is a thriving second hand market in so-called TEPS, or 'traded endowment policies'.
The Chargeable Events legislation will most often apply in connection with what are known as `non-qualifying' life insurance policies and it will also apply to second hand policies which were qualifying but which for some reason ceased to be qualifying (for instance if the term was altered).
Policies which can give rise to a Chargeable Event Gain are not commonly acquired second hand so in most cases in which the Chargeable Events legislation applies there will not be any chargeable gain or allowable loss for Capital Gains Tax purposes - see CG69040+. For the Capital Gains treatment of second hand life insurance policies which give rise to Chargeable Event Gains see CG69061+.