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HMRC internal manual

Insurance Policyholder Taxation Manual

Types of insurance policy used for investment: unit linked policies

A unit linked (or investment linked) policy is one in which the benefits are determinedby reference to the value of a collection of investments which are broadly identified andto whose fortunes the return is linked. Typically, this will comprise a portfolio ofequities, bonds and, perhaps, real property. Investment linked policies’ returns mayalso be determined by reference to a specified investment, or to an index.

This arrangement might be thought of as similar to owning units in unit trusts or sharesas direct investments, but legally the position is quite different and this is reflectedin the tax treatment. There is a contractual relationship between the policyholder and theinsurer. The policyholder’s entitlement is governed by that contract, according tosuch events - death, maturity or surrender whole or partial - as the terms provide for.The sum payable may, subject to the nature of the event, depend on the value of the linkedinvestments, but their nature and value is not directly relevant to the tax charged on thepolicyholder.

Further reference and feedback IPTM1013