Introduction and history of qualifying policies
A qualifying policy is a life insurance policy from a UK company, or a UK branch or permanent establishment of an overseas resident insurer, whose terms meet a complex set of conditions. These include rules about the policy term, regularity and level of premiums paid, and the minimum sum assured. From April 2013, an annual premium limit for premiums payable under relevant policies also applies - see I P T M 2 0 7 0. Where a policy does not meet these conditions it is commonly referred to as a ‘non-qualifying policy’, although that is not a statutory term.
A qualifying policy is tax-favoured, since it does not normally give rise to chargeable event gains. In addition, where the policy was taken out on or before 13 March 1984 and not varied since then, life assurance premium relief continues to be due on the premiums paid.
The general rules described in IPTM8015 onwards apply to policies other than tax exempt policies from friendly societies. These will mainly be endowment policies although the guidance applies to whole of life policies and term assurance policies, modified in some respects. The rules for friendly society tax exempt policies are described in IPTM8400 onwards.
The qualifying policy rules were introduced in 1968 as a reaction to a rapid growth in the use of single premium policies to gain tax advantages. Not only was there tax relief on premiums paid, but the return on the policy was also tax free in the hands of the policyholder. The 1968 legislation was designed to address both the tax free return and the tax relief on the premium offered by the single premium policy, but attempted to preserve these benefits for the ‘traditional policy’.
The characteristics identified as associated with a ‘traditional policy’ were policy length, regularity and evenness of premiums, and a certain level of cover in the event of premature death. The conditions for a qualifying policy reflect these features.
The qualifying status of a policy had to be assessed as at the date of issue in order to determine whether premiums were eligible for tax relief. In 1975, changes were made to the qualifying policy rules, notably where policies contain option clauses. Further changes were made in 2013, see IPTM2070+.
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