Reporting requirements for policy in a valid ISA
Life insurance policies held within valid ISAs
Provided certain conditions are met, life insurance policies can be held within an Individual Savings Account (ISA). From 6 April 2005, insurance policies are normally held within the stocks and shares component of an ISA and the separate insurance component that existed up to 6 April 2005 has been abolished. But if the policy is ‘cash-like’, that is, broadly, the investor is not exposed to any significant risk of loss in the first five years exceeding 5% of the value of the investment, then the policy will be held in the cash component.
There is detailed information on ISAs, including the conditions for an ISA to be valid and the 5% ‘cash-like test’, in the ‘Guidance Notes for PEP and ISA Managers’, published on the HMRC website. Chapter 9 covers life insurance policies in ISAs. The ISA Regulations themselves are contained in SI1998/1870.
No requirement to report gains on policies held in valid ISAs
Where a policy is held within a valid ISA, chargeable event gains can still arise on, for instance, a surrender of the policy, but under the ISA Regulations, such gains are exempt from tax.
The ISA Regulations also specifically disapply the requirement for insurers to report chargeable event gains to policyholders and HMRC where the policy is held within a valid ISA and insurers must not issue certificates for gains on a policy in these circumstances.
Further reference and feedback IPTM1013