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HMRC internal manual

Insurance Policyholder Taxation Manual

Reporting requirements for policy in a void ISA: tax deducted

Where a taxable chargeable event gain arises on a policy within a void ISA there is no income tax treated as paid on the gain.

However, in contrast with chargeable event gains on any other type of life policies, tax must be deducted from gains on policies in void ISAs and paid over to HMRC. ISA managers are required to account for this tax from the funds held in the ISA. If there are insufficient funds remaining, or the ISA has already closed, HMRC may recover this tax directly from the investor.

From 6 April 2008, the rate of income tax to be deducted is the basic rate.

ISA managers should provide details of the tax deducted to the investor. This is separate to the requirement to provide a chargeable event certificate to the investor but it is acceptable in practice for the insurer also to report the tax deducted on the same certificate, so long as it is clear that it is tax deducted, not tax treated as paid.

Further reference and feedback IPTM1013