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HMRC internal manual

Insurance Policyholder Taxation Manual

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HM Revenue & Customs
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Permitted benefits under a qualifying policy

Capital sums payable on contingent events

The payment on a contingent event - death, disability or maturity - must be a capitalsum and a qualifying policy may only pay a capital sum on one contingent event. The policymay provide for the capital sum to be paid in instalments, but if so, there must be aclear obligation to this effect. If not, and the instalments are regarded as income, thepolicy will not be a qualifying policy.

There are conditions on the minimum sum assured on death - see IPTM8030- but not on sums payable on maturity or disability. The sum payable on death need notbe the same as the sum payable on disability.

Other benefits permitted under a qualifying policy

There are certain other benefits that are permitted under a qualifying policy, otherthan capital sums on contingent events. These are the

  • right to participate in profits of the insurance company, which means that there may be annual or reversionary bonuses, governed by the insurer’s duty of fairness, and at maturity a terminal bonus.
  • right to surrender all or part of the rights under the policy - this will involve a potential variation of the policy and it will need to satisfy the tests for varied policies accordingly - see IPTM8165
  • waiver of premiums because of a person’s disability
  • option to receive payments by way of an annuity.

An increase in unit allocation on a unit-linked policy under its terms, for instancewhere the policyholder pays a higher level of premium which results in an increase inallocation rate, would be a permitted benefit with no bearing on the qualifying status.Where an uplift is not under the terms of the policy it is likely to be a significantvariation with the consequences described at IPTM8165 onwards.

Further reference and feedback IPTM1013