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HMRC internal manual

Insurance Policyholder Taxation Manual

From
HM Revenue & Customs
Updated
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The charge to tax: corporation tax

This page only applies to events occurring in a company’s accounting period starting before 1 April 2008. For accounting periods starting on or after 1 April 2008, the chargeable event gain rules no longer apply to investment life policies, purchased life annuity contracts and capital redemption policies owned by companies and instead they are taxed under the loan relationships rules - see IPTM3900 onwards.

A charge to corporation tax on life policies, life annuities and foreign capital redemption policies was introduced by FA89 for chargeable events in accounting periods beginning after 31 March 1989. Before then, close companies were subject to an ‘apportionment’ charge on chargeable event gains and other companies were not chargeable. It is imposed by ICTA88/S547 (1)(b).

Chargeable event gains are treated as forming part of the Case 6 of Schedule D income of companies where the policy or contract is made on or after 14 March 1989 or, if made before, is varied on or after that date to increase the benefits or extend its term.

Policies made before 14 March 1989, unless varied in this way, are not subject to any charge under the chargeable event regime. There may be a chargeable capital gain if the exemption under TCGA92/S210 does not apply because the benefit of the contract was acquired by assignment for actual consideration - a second hand policy.

A chargeable event gain will form part of the Case 6 income of a company where the rights conferred by the policy or contract are

  • beneficially owned by the company
  • held on trusts created by the company, or
  • held as security for a debt owed by the company.

All companies are subject to the charge, including charities and housing associations.

When gains arise

A gain arises when a chargeable event occurs and is assessable for the accounting period in which the ‘insurance year’, see IPTM3505, ends. This applies to events including death, surrender or maturity of the policy. Special rules apply to partial withdrawals and assignments, see IPTM3540 and IPTM3570.