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HMRC internal manual

Insurance Policyholder Taxation Manual

From
HM Revenue & Customs
Updated
, see all updates

Sickness disability and unemployment insurance: anti- avoidance rules: bundles of benefits from one or more policies

Some policies may provide for payments to be made which do not relate only to aqualifying health or employment risk as described in IPTM6115.For example, a policy that insures against a qualifying health or employment risk could bepackaged together and sold as one product with an investment policy or insurance againstrisks of a different type.

Similarly, a policy that insures against a qualifying health or employment risk may belinked to an investment policy or another insurance policy of a different type.

Such policies may exist for genuine commercial reasons, but both situations present anopportunity to price the two different elements artificially, while not affecting theoverall cost, and thus gain a tax advantage.

An advantage could accrue for example if the ‘other’ policy was over-priced andthe premium paid for it attracted tax relief, while the payments received from thequalifying health or employment risk element would, without the special rules outlinedbelow, be free of tax. In this way the policyholder would obtain tax relief for premiumsand tax-free benefits from the policy, at odds with the intention of the exemption set outat IPTM6110.

Where policies are contrived in these ways no part of the payments from those policieswill qualify for the exemption. But if the qualifying health or employment risk part ofthe overall package was insured on an arm’s length basis, the payments received whichrelate to the qualifying risk – see IPTM6115 – willqualify for the exemption.

Policies providing other benefits

Where a policy provides other benefits in addition to those relating to a qualifyinghealth or employment risk, the policy terms that relate to the qualifying health oremployment risk must not differ significantly from what they would have been had thepolicy only insured against the qualifying risk.

Linked or connected policies

Where a policy that insures against a qualifying health or employment risk is linked toanother policy, the policy terms that relate to the qualifying health or employment riskmust not differ significantly from what they would have been had there not been anypolicies linked to or connected with it.

Further reference and feedback IPTM1013