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HMRC internal manual

Insurance Policyholder Taxation Manual

Reduction for non-UK policyholder from 6 April 2013

From 6 April 2013, the following changes to the general rule at IPTM3730 apply:

  • Time apportioned reductions are extended to gains made on life insurance policies issued by UK insurers. Previous rules only provided for time apportioned reductions where a life insurance policy had been issued by a foreign insurer.
  • Time apportioned reductions will be calculated by reference to the residence history of the person liable to income tax on the gains. A time apportioned reduction can also apply to a chargeable event gain arising to the estate of a deceased individual.
  • From 6 April 2013 tax residence is determined under a new statutory residence test.

The changes in the first two bullet points above affect life insurance policies or capital redemption policies issued on or after 6 April 2013 and owned by individuals.

Those changes also affect policies issued before this date if on or after 6 April 2013:

  • The policy is varied and this results in an increase in the benefits secured. This includes such variations to policies which would not have been eligible for a time apportioned reduction under the rules applicable prior to 6 April 2013.
  • There is an assignment of rights, or a share of the rights, under the policy to the individual. This also applies if a chargeable event gain arises to the estate of an individual and the policy was assigned to the deceased person on or after 6 April 2013.
  • Some or all of the rights conferred by the policy or contract become held as security for a debt of the individual or deceased.

The exercise of rights (e.g. exercising an option) under an existing policy count as a variation of the policy.

However, continuing regular premium commitments will not constitute a variation. Increases to premiums that are automatic as part of the policy will not represent a variation (unless they relate to the exercise of an option, as noted above).

An assignment includes an assignment into or out of a trust.

Changes to the time apportioned reduction rules, to reflect the introduction of the statutory residence test, apply to all policies where the gain arises on or after 6 April 2013.

Changes to the time apportioned reduction rules must also be considered in the context of calculating top-slicing relief (see IPTM3820 onwards).