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HMRC internal manual

Insurance Policyholder Taxation Manual

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HM Revenue & Customs
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Foreign policies: differences in treatment

‘Foreign policies’ are defined at IPTM3330. The date of issue for this purpose is important, as older policies issued by foreign insurers (that is life policies issued before 18 November 1983 and capital redemption policies issued before 23 February 1984) do not fall within the ‘foreign policy’definition. Therefore they will, for example, be treated as though basic rate tax has been paid. The main differences in treatment between a ‘foreign policy’ and a UK or older policy are

  • ‘foreign policies’ cannot in most cases be qualifying, see IPTM3710 
  • ‘foreign policies’ cannot in most cases be treated as though basic rate tax has been paid on any gains, see IPTM3720 
  • the gain on a ‘foreign policy’ is reduced if the policyholder was not UK resident throughout the policy period, see IPTM3730 
  • in order to prevent excessive relief, the number of complete years by which a gain on a ‘foreign policy’ is divided under the top-slicing relief provisions, is also reduced if the policyholder was not UK resident throughout the policy period, see IPTM3830.

Policies denominated in a foreign currency

Some policies are denominated in a foreign currency. In such cases, any chargeable event gain should be computed in the foreign currency and then converted to sterling at the rate that applies at the date of the chargeable event. This method should be adopted rather than any other method such as converting each transaction to sterling at the rate applying on the date the transaction occurred.

For instance, if premium of €10,000 was paid into a policy on 10 May 2002 and the policy was surrendered for €12,500 on 3 January 2005, the chargeable event gain on the surrender is €2,500. This should then be converted to sterling at the conversion rate applying on 3 January 2005 to arrive at the amount of taxable gain.

Further reference and feedback IPTM1013