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HMRC internal manual

Insurance Policyholder Taxation Manual

HM Revenue & Customs
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Calculating gains: death, maturity, full surrender or assignment: replacement policies

A qualifying policy may be replaced by another qualifying policy and the two policies together treated as a single qualifying policy if all the following conditions are met

  • both replacement and replaced policies are regarded as qualifying under the rules of ICTA88/SCH15/PARA17 - see IPTM8120 onwards
  • the replacement results from a change in the life or lives assured
  • any sum payable by the insurer on the termination of the replaced policy is retained by it and applied against premiums due on the replacement policy - referred to as a retained replacement policy premium 
  • no consideration in money or money’s worth is receivable by any person in connection with the termination of the replaced policy or commencement of the replacement policy, other than the policy benefits - more details at IPTM7340.

This retained replacement policy premium is ignored when calculating total benefits and total deductions in calculating gains under IPTM3510.

Further reference and feedback IPTM1013