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HMRC internal manual

Insurance Policyholder Taxation Manual

Outline of the chargeable events regime: underlying theory

In economic terms, the insurer takes the premiums and invests them for income and/orcapital gains that accrue until sums are withdrawn from the policy. The scheme of taxationwaits until policy benefits are received from the insurer or the policy is assigned,including a partial assignment, to another holder for value, and a chargeable eventarises.

The amount of charge is not directly related to the value of the fund, but to the amountswithdrawn. Although, over the lifetime of the policy, there will be a correlation betweenthe change in value of the fund and overall return, it is quite possible for significantmismatches to occur on partial withdrawals or assignments. Broadly, over its lifetime, thetotal charges on the policy will equate to the net gain upon it, namely, the differencebetween benefits received and premiums paid.

Further reference and feedback IPTM1013