Life insurance policies/deferred annuities: exemption for second hand policies: disposals before 9 April 2003
For disposals before 9 April 2003 the old TCGA92/S210 (2) provided that no chargeable gain accrued on a disposal of the rights, or an interest in the rights, under a life insurance policy or a deferred annuity contract. But the exemption did not apply where the person making the disposal
- was not the original beneficial owner under the terms of the policy, and
- had acquired the rights for a consideration in money or money’s worth.
A person who acquired the rights under a policy by way of a gift would, therefore, be within the exemption. The payment of premiums under a policy by any person to whom the benefit of the policy is assigned relieved the previous policyholder of a liability. But this was not in itself regarded as the giving of consideration in money or money’s worth for the acquisition of the rights.
The concept of the ‘original beneficial owner’ is not relevant for disposals on or after 9 April 2003, but for earlier disposals the following rules applied:
- Where, under a policy on the life of A, the proceeds were payable either to B or to the trustees of a fund for the benefit of B absolutely, the policy was exempt because B was the original beneficial owner. The existence of a reciprocal arrangement on these lines between partners did not affect this treatment.
- Where, under a policy on the life of A, the proceeds were payable to trustees for the benefit of B (if he survives A) but otherwise to Mrs A, neither B nor Mrs A was absolutely entitled to the benefit of the policy. The policy was, however, regarded as exempt because on the disposal it would be known who would benefit and the person who did benefit was, in these circumstances, regarded as the original beneficial owner. The existence of a reciprocal arrangement on these lines between partners did not affect this treatment.
- Where trustees took out a life insurance policy, in particular where they were seeking to protect themselves from a possible charge to Inheritance Tax, it could be accepted that they were the beneficial owners of the policy within the old TCGA92/S210 (2).