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HMRC internal manual

Insurance Policyholder Taxation Manual

Foreign policies: basic rate tax not treated as paid

This consideration applies to

  • a ‘foreign policy of life insurance’, unless it is issued by the UK branch of a non-UK resident insurer
  • a ‘foreign capital redemption policy’
  • a life annuity issued by a provider whose annuity business does not fall within UK ‘basic life and general annuity business’.

In most circumstances, the insurer will not have been within the ‘I minus E’ system that effectively collects some tax on the insurer’s profits attributable to assets used to pay benefits to policyholders. Consequently basic rate tax is not treated as having been paid on any gains that arise on the policy or contract.

However, if the policy or contract is old enough to fall outside the definitions of ‘foreign policy’ or ‘foreign contract’, see IPTM3330, tax is treated as having been paid notwithstanding. See IPTM3810 regarding other policies and contracts where basic rate tax is not treated as paid on gains.

A few European Economic Area (EEA) countries apart from the UK retain a similar system to the UK for taxing insurers and in this case tax may be treated as having been paid, see IPTM3810.

Further reference and feedback IPTM1013