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HMRC internal manual

Insurance Policyholder Taxation Manual

Full surrender, maturity, death or whole assignment: total deductions: premiums

Total deductions include the amount paid under the policy or contract, and any relatedpolicies by way of premiums. If commission on the policy has been rebated to thepolicyholder or reinvested as additional premium then the total deductions relating topremiums must be restricted in some circumstances – IPTM3527.Insurers are not likely to know whether a restriction applies and in calculating the gainto be reported on a certificate they should disregard any such restriction of premium.

Where there is an earlier related policy, the reinvested proceeds applied as premium to alater policy are normally included as premiums in TD in the calculation of the gain - see IPTM7510 for this calculation. The exception is where a qualifyingpolicy is replaced by another qualifying policy on the change of a life assured and noconsideration is paid. IPTM7515 describes what is meant by‘related policy’.

Meaning of ‘premiums’

Premium takes its normal meaning in the context of life insurance and capitalredemption policies and life annuity contracts. It is not defined in tax legislation,although the legislation clarifies that premium includes lump sum consideration paid byway of premium.

It also includes non-cash property transferred to the insurer in satisfaction of apremium, in which case the amount of premium to be taken is the market value of theproperty at the date of transfer.

Where there are commission arrangements see IPTM7531.

Second hand capital redemption policies

There is an exception from the general calculation rule for capital redemptionpolicies, which have previously been assigned for money or money’s worth. The amountof premiums must be replaced in the gain calculation by the consideration for the lastassignment plus the total of any premiums paid since the last assignment.

If an insurer knows that there has previously been an assignment for money or money’sworth then in most cases it will also know the amount of consideration for the assignmentand so be able to include this in the gain calculation. IPTM7130 explainswhat to do in other cases.

Further reference and feedback IPTM1013