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HMRC internal manual

Insurance Policyholder Taxation Manual

Foreign policies: reduction for non-UK policyholder: example


  • Michael takes out a life policy on 17 March 1997 from an insurer based in Jersey whilst working in Germany.
  • He returns to the UK on 20 April 2001 and is UK resident from that date.
  • He fully surrenders the policy on 5 October 2005, giving rise to a chargeable event gain of £10,750.

Tax treatment

  • The policy is a ‘foreign policy’ within the definition in IPTM3330 so an apportionment of the gain applies, as described in IPTM3730. There must also be a restriction in the number of years for top-slicing relief, as described in IPTM3830.
  • The policy ran for a total of 3,125 days, including the days on which it was made and surrendered. Michael was not resident in the UK for 1,495 days of this period.
  • Michael is due a reduction in the gain of £10,750 x (1,495/3,125) = £5,143. Thus he is liable on a gain of £5,607, which is the figure that should be entered on his tax return for the 2005-06 tax year.
  • The policy ran for 8 complete years. Michael was non-resident for 4 complete years so the number of years for top-slicing relief to be entered on the tax return must be reduced to the 4 in which he was UK resident.