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HMRC internal manual

Insurance Policyholder Taxation Manual

Policies and contracts owned by companies: application of the loan relationships rules: scope and commencement

Following FA08/SCH13, where a company other than a life insurance company is a party to an ‘investment life insurance contract’, this is treated as a loan relationship of the company. It is taxed as a creditor relationship under the loan relationships rules in Part 6 , Chapter 11 CTA09 (previously Chapter 2 of Part 4 of FA96), rather under the chargeable event gain rules, with any profits or losses arising treated as non-trading credits or debits of the company.

Whether a company is a party to an investment life insurance contract will follow in the same way as for other loan relationships that a company might be party to. Where a company is the beneficial owner of rights under an insurance contract it will be a party to that contract. The Corporate Finance Manual gives guidance on the treatment of loan relationships generally while the guidance in IPTM in IPTM3900 onwards considers the specific application of the loan relationships rules to investment life insurance contracts.

The guidance in IPTM relating to company-owned policies and contracts and loan relationships refers mainly to “insurance contracts” rather than “policies and contracts” (which is used elsewhere in IPTM in the context of the chargeable events rules) since that is a more appropriate term in the context of the loan relationships rules.

Meaning of investment life insurance contract

An ‘investment life insurance contract’ is

  • a life insurance policy which has a surrender value or is capable of acquiring one, so for instance a protection-only term assurance single life or group life policy is not within this definition
  • a purchased life annuity contract, or
  • a capital redemption policy.


Two types of policy or contract are excluded from this definition. Firstly, those held for the purposes of a registered pension scheme. Secondly, life policies made before 14 March 1989 and not varied on or after date so as to increase the benefits secured or extend the term. They are not within the chargeable event gain rules and these exclusions ensure that they remain outside the scope of charge under the loan relationships rules.

Start date for application of the loan relationships rules to insurance contracts

The start date from which the loan relationships rules apply depends on the accounting period of the company that is party to the insurance contract. The rules take effect from the beginning of the first accounting period to begin on or after 1 April 2008 and the chargeable events rules cease to apply to the company from that date.

For instance, where a company’s accounting year ends on 30 September, the loan relationships rules will apply from 1 October 2008 to investment life insurance contracts to which the company is a party and the chargeable events rules will cease to apply from then.

IPTM3930 to IPTM3940 explains the rules for transition from the chargeable events regime to the loan relationships rules.

Capital redemption policies

The loan relationships rules already applied from 10 February 2005 to companies that own capital redemption policies that are money debts, that is, capital redemption bonds, following F2A05/SCH7/PARA14.For such policies, the loan relationships rules take precedence over the chargeable event rules from 10 February 2005.

The meaning of capital redemption policy is discussed at IPTM1120.

Further reference and feedback IPTM1013