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HMRC internal manual

Corporate Finance Manual

HM Revenue & Customs
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Deemed loan relationships: investment life insurance contacts: scope and commencement

Investment life insurance contracts

Where a company other than a life insurance company is a party to an ‘investment life insurance contract’, this is treated as a loan relationship of the company. It is taxed as a deemed creditor loan relationship under rules in CTA09/PT6/CH11, rather under the chargeable event gain rules, with any profits or losses arising treated as non-trading credits or debits of the company. See the Insurance Policyholder Taxation Manual (IPTM) for a more detailed explanation of the treatment of investment life insurance policies.

Whether a company is a party to an investment life insurance contract will follow in the same way as for other loan relationships that a company might be party to. Where a company is the beneficial owner of rights under an insurance contract it will be a party to that contract.

Meaning of investment life insurance contract

An ‘investment life insurance contract’ is

  • a life insurance policy which has a surrender value or is capable of acquiring one, so for instance a protection-only term assurance single life or group life policy is not within this definition,
  • a purchased life annuity contract, or
  • a capital redemption policy.

Two types of policy or contract are excluded from this definition. Firstly, those held for the purposes of a registered pension scheme. Secondly, life policies made before 14 March 1989 and not varied on or after date so as to increase the benefits secured or extend the term. They are outside the scope of the loan relationship rules.

Start date for application of the loan relationships rules to insurance contracts

This treatment of the profits and gains from investment life insurance contracts as loan relationship creditor relationships was introduced by FA08/SCH13.

The start date from which the loan relationships rules apply depends on the accounting period of the company that is party to the insurance contract. The rules take effect from the beginning of the first accounting period to begin on or after 1 April 2008 and the chargeable events rules cease to apply to the company from that date.

For instance, where a company’s accounting year ends on 30 September, the loan relationships rules will apply from 1 October 2008 to investment life insurance contracts to which the company is a party and the chargeable events rules will cease to apply from then.

IPTM3930 to IPTM3940 explains the rules for transition from the chargeable events regime to the loan relationships rules.

Capital redemption policies

From 10 February 2005 the loan relationships rules apply to companies that own capital redemption policies that are money debts, that is, capital redemption bonds, following F2A05/SCH7/PARA14. Before 10 February 2005 the chargeable event rules apply to such policies. The Insurance Policyholder Taxation Manual provides more detailed guidance relating to company-owned policies and contracts including transitional provisions.