Calculation of gains on capital redemption policies held by companies
The chargeable event gain rules no longer apply to companies from the ‘start date’ of the first day of the first accounting period of a company that began on or after 1 April 2008. Instead the loan relationships rules in Chapter 11 of Part 6 CTA09 (previously Chapter 2 of Part 4 FA96) apply to policies and contracts owned by a company. IPTM3900 onwards explains the new general rules.
Whereas life policies and purchased life annuities are only brought within the loan relationships legislation from the start date, capital redemption policies were brought within the loan relationships legislation from 10 February 2005.
Capital redemption policies owned by companies were still within the chargeable event regime in Chapter 2 Part 13 of ICTA88 until the start of the first accounting period of the company to begin on or after 1 April 2008 but where they were taxed under the loan relationships legislation, no chargeable event gains could arise. This is because under ICTA88/S547 (2), any amount taxed under the loan relationships legislation is excluded from the chargeable event gain calculation.
Insurers’ reporting requirements
In most cases where a company is the policyholder it will also be the taxed under the loan relationships legislation and no gain will arise. Therefore an insurer need not issue chargeable event certificates for a capital redemption policy for events arising on or after 10 February 2005 where it knows that the policyholder is a company unless it has information to suggest that the taxable person is different from the policyholder and is not a company.
HMRC has, however, agreed that it is also acceptable for an insurer to continue to issue chargeable event certificates in respect of capital redemption policies held by companies if it is more convenient. An insurer may wish to take this approach, for instance, if it is difficult under its systems to separate company policyholders from other policyholders.