Calculating gains: maturity, full surrender or assignment: commission rebated or reinvested as premium
Where a financial adviser or other intermediary has received commission from the insurer in respect of premiums paid on a policy or contract and passes on some or all of that commission to the policyholder, or a person connected with the policyholder, the amount of premium allowed in ‘total deductions’ in the gain calculation must not include the amount of commission rebated if
- total premiums paid on or after 21 March 2007 into all policies and contracts held by the policyholder exceed £100,000 in any given tax year, and
- the policy or contract is surrendered, matures or is assigned for money or money’s worth before the end of the third tax year after that in which the £100,000 premium threshold is crossed.
Commission reinvested as premium
A similar rule applies where instead of being rebated, the commission is reinvested into the policy as additional premium. Then the amount of premium allowed in the gain calculation in ‘total deductions’ is restricted to the amount of premium paid by the policyholder and does not include the commission reinvested as additional premium.
However, it does not apply to the common arrangements where the financial adviser gives up a right to commission in return for enhancing policyholder benefits, for instance by way of allocation of bonus units, and there is no additional premium. It also does not apply where there are ‘commission menu’ arrangements where the intermediary selects an entitlement to commission which is less than the maximum payable by the insurer and the insurer enhances policyholder benefits as a result.
Chargeable event certificates
Where rebated or reinvested commission affects the calculation of the gain as described above, this will not be reflected in the gain shown on a chargeable event certificate, if any. Then the amount of commission rebated or reinvested as premium must be added to the reported gain to arrive at the full chargeable event gain that must be reported on the liable person’s tax return.
Further reference and feedback IPTM1013