HMRC internal manual

Insurance Policyholder Taxation Manual

IPTM7400 - Chargeable events on void ISAs: other chargeable events

Excess events

If there have been part surrenders of the policy then excess events might have arisenon the policy in the normal way, as described in IPTM7605 toIPTM7620.

If the ISA is void giving rise to a termination event as described in IPTM7395 then gains on any earlier excess events become taxable onthe investor and the event and gains must be reported to the investor as described in IPTM7220. This is the case even if the circumstances that causedthe ISA to become void only occurred after the part surrenders were made.

Full surrender, maturity and death

Where a policy meets all the conditions to be a qualifying investment in a valid ISA,any investor is specifically exempt from tax on gains on chargeable events and the insureris released from the requirement to issue chargeable event certificates reporting theevents and gains. The ISA rules do not prevent chargeable events from occurring in thefirst place.

When an ISA is void, the tax exemption and release of insurers from providing certificatesis removed for termination events and excess events but it is not removed for otherchargeable events.

So, insurers do not need to calculate gains or issue certificates where a policy in a voidISA is brought to an end by surrender, maturity or death. Since a policy in an ISA mustautomatically terminate when the ISA manager becomes aware that the ISA is void, this willonly be an issue if the policy comes to an end before the ISA manager becomes aware thatthe ISA is void. Although there may be a taxable and reportable gain on the deemedtermination event when an ISA is made void and terminated, there will not be a taxablegain on an event that actually brings the policy to an end.

Since another condition of a policy to be held within an ISA is that it may only be on thelife of the investor, the death of the investor will bring the policy to an end.

Assignments and part assignments

As it is a fundamental condition of policies within ISAs that they cannot be assigned,either in whole or in part, no chargeable events will arise on whole or part assignmentsof a policy held within a void ISA.

Further reference and feedback IPTM1013