HMRC internal manual

Insurance Policyholder Taxation Manual

Foreign policies: reduction for non-UK policyholder

You should check the other guidance available on GOV.UK from HMRC as Brexit updates to those pages are being prioritised before manuals.

The gain from a ‘foreign policy’ of life insurance or foreign capital redemption policy is reduced if the policyholder was not UK resident throughout the policy period. This is often referred to as a ‘time apportioned reduction’. The rules on this page applied prior to 6 April 2013. IPTM3731 explains the changes to these rules from 6 April 2013.

Prior to 6 April 2013, the gain is reduced by an appropriate fraction, equal to A/B, where

A is the number of days on which the policyholder was not UK resident in the policy period

B is the total number of days in the policy period.

Policy period means the number of days the policy has run before the chargeable event occurs.

If the gain is under a policy which is a ‘new policy’ under the substituted policy rules at ICTA88/SCH15/PARA17, see IPTM8120 onwards, the policy period includes the old policy and any predecessor of that policy under a similar application of the rule.

The reduction does not apply to a policy held by

  • non-UK resident trustees unless it was held by them on 19 March 1985
  • a foreign institution unless it was held by it on 16 March 1998.

Foreign institution is defined at IPTM3260. Residence of trustees follows the rule at TSEM1461.

Where a gain under such a policy is reported on a chargeable event certificate, the full gain will be shown on the policy. If an apportionment for periods of non-residence is due, it is up to the person liable to calculate the apportioned gain and enter it on the tax return. This is one of three circumstances where the amount of gain shown on a tax return might differ from the amount of gain shown on a chargeable event certificate. The others are where more than one person is liable on the gain or where the policy is a restricted relief qualifying policy (see IPTM2076).