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HMRC internal manual

Insurance Policyholder Taxation Manual

Qualifying policies and life assurance premium relief: mortgage endowments: premium reviews

Endowment policy premium reviews

Insurers generally insert review clauses into mortgage-linked endowments, typically at5- yearly intervals, sometimes more frequently as the policy approaches maturity. The aimis to assess whether the policy is on track to pay off the loan. These review clauses mayrequire additional premiums to be paid. Or, more commonly, offer the policyholder a choicewhether to increase the premiums, to bring the policy back on track.

Mandatory increases

If the policyholder does not object to the increase, then the qualifying status of thepolicy is unaffected. An increase under a mandatory review clause will be restricted so asnot to breach the premium spreading rule outlined at IPTM2020.This is merely an application of the policy terms.

If the policyholder objects to the increase, and the insurer accommodates the objection,then this would amount to a variation in the policy terms that may lead to loss ofqualifying status, depending on other features such as the remaining term of the policy.

Optional increases

As with mandatory increases, the status of the policy will not be affected if theholder accepts the increase. It is possible for the optional increase to breach thepremium spreading rules outlined at IPTM2020 without affectingqualifying policy status if the policy still has at least 10 years to run. This assumesthat the terms of the policy were certified at the outset as qualifying having regard tothe review option clause.

If the policyholder does not accept the increase, the qualifying status of the policy isnot affected.

Review clause removed or added by agreement

This would amount to a significant variation of the policy. The rule at ICTA88/SCH15/PARA18would treat the varied policy as a new policy, applying the rules at ICTA88/SCH15/PARA17.See IPTM8165.

Further reference and feedback IPTM1013