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HMRC internal manual

Insurance Policyholder Taxation Manual

HM Revenue & Customs
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Development of policyholder taxation: outline of changes

The main changes to the original 1968 scheme are as follows:

  • FA71 prepared the ground for the abolition of surtax and introduction in 1973 of the ‘unified system’, basic rate and higher rate bands
  • FA75 brought about four changes of significance

    • prior certification of policies as qualifying, as the system was so complex
    • introduction of a tax deferral rule for partial surrenders or assignments that do not exceed the aggregate of an annual ‘allowance’ of 5% of premiums paid, on a rolling basis
    • clarification of the rules that operate where one policy is replaced by another or there is a significant variation in policy terms - ICTA88/SCH15/PARA17 and ICT88/SCH15/PARA18 in relation to policies containing options
    • introduction of deficiency relief
  • FA76 and FA78 introduced life assurance premium relief by deduction
  • FA83 introduced, as an anti avoidance measure, a chargeable event gain charge on second hand policies (previously CGT charge only)
  • FA84

    • abolished life assurance premium relief by deduction, and consequently most premium relief, for new or amended policies
    • made changes to the rules governing policies issued by non-UK resident insurers
  • FA89 introduced a chargeable event gain charge on companies
  • FA97 ensured that gains on so-called guaranteed income bonds are taxed under the chargeable event gains regime, rather than as interest or annual payments
  • FA98

    • introduced the legislation preparing the ground for the 1999 Personal Portfolio Bond regulations designed to make an annual charge on insurance bonds whose assets are chosen by the investor (following the case of CIR v Willoughby, 70TC57)
    • provided new rules dividing gains between co-owners of a policy, and co-settlors where a policy is held on trust
    • introduced the legislation preparing the ground for the 1999 Overseas Insurers Tax Representative regulations designed to ensure that overseas insurers issue chargeable event certificates in appropriate circumstances
  • FA01

    • introduced a requirement for insurers to send chargeable event certificates to the policyholders, and revised the requirements for sending certificates to HMRC
    • overhauled the chargeable event gains rules where there are transfers of co-owned policies in certain circumstances
  • FA02 provided that part assignments for no consideration are excluded from the charging provisions
  • FA03

    • took most protection-only group life policies outside the chargeable event gains rules
    • substituted a charge on the trustees for a charge on the settlor in the case of charitable trusts
    • amended the tax rate paid by UK insurers on behalf of the policyholder from basic to lower, with consequential changes for the policyholder tax code
  • FA04 prevented exploitation of deficiency relief by restricting the amount of relief available to an individual to the amount of earlier gains on the policy that had arisen to the same individual
  • ITTOIA05 separated the income tax and corporation tax codes for the chargeable event regime, and enacted a number of former extra statutory concessions within the income tax code.
  • FA08

    • amended the tax rate paid by UK insurers on behalf of the policyholder to basic rate
    • took companies outside the chargeable event gain rules. Instead, they are now taxed under the loan relationships rules.
Further reference and feedback IPTM1013