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HMRC internal manual

Insurance Policyholder Taxation Manual

From
HM Revenue & Customs
Updated
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Chargeable events: qualifying policies: variation or exercise of option which increases the premiums payable

Variations which increase the premiums payable

What is meant by a variation that ‘increases the premiums payable under a policy’ has been the subject of debate over the years. The current view of HMRC is that it applies when the level of annual premium is increased, except where this relates solely to a change in payment frequency, for instance from annually to monthly. The test does not look at the total of premiums payable over the remaining term of the policy from the date of variation.

So, a variation to increase the annual premiums payable would be a variation that increases the premiums payable under the policy, even if it is accompanied by a reduction of the term such that the total of premiums payable over the balance of the term is reduced.

Examples of variations that are not regarded as increasing the premiums payable are

  • a change in the premium payment frequency even if it is accompanied by a small premium increase to reflect this, for instance, if an annual premium of £1000 is changed to a monthly premium of £90
  • an increase in the term of the policy without changing the amount of each payment of premiums.

Additionally, any changes in premiums payable or the term of the policy may affect the qualifying status of the policy, see IPTM8000 onwards.