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HMRC internal manual

Insurance Policyholder Taxation Manual

Immediate Needs Annuities: tax treatment from 1 October 2004: payments made to a registered care provider: general rules and scope

General rules

In general, payments under a policy which qualified as an Immediate Needs Annuitywhen it was taken out, including policies taken out before 1 October 2004 if theywould have met the qualifying conditions at the time they were taken out, which are

  • made to a registered care provider
  • for the care of the person protected under the policy

are not taxable income of the insured person.

To qualify for the exemption, a policy must meet the qualifying conditions when it wastaken out. In other words, an ‘ordinary’ Purchased Life Annuity - see IPTM4220 - cannot become an Immediate Needs Annuity. Where anexisting contract is topped up, for example, to provide for personal or nursing care, thelikelihood is that the ‘top-up’ would constitute a new contract and this couldmeet the qualifying conditions.

It is possible to buy an Immediate Needs Annuity on ‘the life of another’.Payments under such a policy can qualify for the exemption.

The detailed rules are set out below.

If any payment, or any part of any payment, is made directly to the insured person orafter their death, see IPTM6220.

Scope of the exemption: ITTOIA05/S725

Payments received from an insurance policy are exempt from tax if they are made

  • under a policy which qualifies as an Immediate Needs Annuity - see IPTM6215
  • for the benefit of the person protected by that policy, and
  • to a registered care provider for care of that person - see IPTM6215.

Tax treatment: registered care provider

A payment from an insurer under an Immediate Needs Annuity received by a care providerthat is not a local authority will generally be a trade receipt. Further advice isavailable at BIM40050 onwards.

Further reference and feedback IPTM1013