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HMRC internal manual

Insurance Policyholder Taxation Manual

Policies and contracts owned by companies: application of the loan relationships rules: payouts on death or critical illness

Treatment of payouts on deathIn calculating the taxable loan relationships credit on the death of the life assured, the excess of the lump sum payout on death over the surrender value of the insurance contract immediately before the date the sum becomes payable is not brought into account. This ensures that the mortality gain is not taxable.

Treatment of payouts on critical illnessSimilarly, the morbidity gain is not taxable. In calculating the taxable loan relationships credit on a lump sum payout on the onset of critical illness, the excess of the lump sum over the surrender value immediately before the time that the sum becomes payable is not brought into account.

Date on which lump sum on death or critical illness becomes payableThis will depend on the terms of the particular insurance contract and it is not possible to give definitive guidance on this here. It will depend on the claims procedure and, in particular, how claims are established.

For death cases, it is likely to be the date of death if it follows from the contract terms that the claim is established from the date of death.

For claims on critical illness, it may depend on when the claim is established under the terms of the contract.

Further reference and feedback IPTM1013