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HMRC internal manual

Insurance Policyholder Taxation Manual

Income tax treated as paid and reliefs

In most cases, individuals and trustees liable for tax on a gain on a UK policy are treated as having paid tax on the gain at basic rate. This notional tax is not repayable in any circumstances and the gain is not grossed up. So if the gain is £1,000 that is the amount included in total income and the tax at basic rate treated as having been paid is £200. More details are given at IPTM3810.

Two further major reliefs are available to individuals who are chargeable under the chargeable event regime

  • top slicing relief, see IPTM3820, which recognises that gains usually accrue over several years, but the charge may be for a single year
  • deficiency relief, see IPTM3860, which may give a measure of relief where there have been gains assessed on earlier part withdrawals from a policy but there is no chargeable event gain on the chargeable event which brings the policy to an end. This relief may also be referred to as ‘corresponding deficiency relief’, or CDR, although this is now an out-dated term, which is not used in ITTOIA05.
Further reference and feedback IPTM1013