Transaction-related calculations: example: part assignments for money or money’s worth
This example illustrates the straightforward case where there is a part assignment formoney or moneys worth during the year, showing how the gain on the assignment ariseson the person assigning part of the policy and that person is due the chargeable eventcertificate.
A single premium policy was taken out on 10 June 2000 with a premium of £10,000 byjoint policyholders Simon and Tony.
- On 6 January 2004, Simon and Tony assign the rights under the policy to Tony, who becomes sole owner. Tony pays Simon £5,000 in return, which is the value of 50% of the policy at that date
- On 1 May 2007, Tony assigns the policy to Tony and Suzanne jointly, and in return Tony acquires an appropriate share of Suzannes flat. The value of the policy is £12,000.
6 January 2004: Tony is an owner both before and after the assignment so thetransfer is treated as an assignment of half the policy from Simon to Tony forconsideration of £5,000 and a transaction-related calculation needs to be carried out.
The part assignment took place in the 4th insurance year so the allowable element of thepremium is 4 x 5% x £10,000 = £2,000. There is a gain of £3,000 (that is, £5,000 -£2,000) and a part surrender or assignment event occurs on the date of the relevanttransaction, 6 January 2004, which falls in tax year 2003-2004.
The gain is taxable on Simon but as the end of the insurance year in which the eventoccurs falls in tax year 2004-2005, the gain is taxable on him in that later year, ratherthan the tax year in which the event occurs.
A chargeable event certificate must be sent to Simon as the appropriatepolicyholder immediately before the assignment. Assuming the insurer was informedpromptly of the event, this certificate must be delivered to Simon by 9 September 2004,that is within 3 months of the end of the insurance year in which the event occurred.
1 May 2007: The part assignment is for consideration as Tony exchangeshis share of the policy for a share in Suzannes flat. The value of the partassignment is £6,000. It falls in the 7th insurance year so the allowable element ofpremium is £1,500 (that is, £3,500 less the amount already used of £2,000). There is again of £4,500 and a part surrender or assignment event on 1 May 2007. The gain istaxable on Tony in 2007-2008, the tax year in which the insurance year ends and acertificate must be sent to Tony reporting this gain by 9 September 2007.
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