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HMRC internal manual

Insurance Policyholder Taxation Manual

Substitution of a qualifying policy that has run for at least ten years: whether new policy qualifies

A new policy issued in substitution for an old policy may not satisfy the qualifying policy rules when tested as a stand-alone policy because

  • the term or premium paying term of the new policy described in IPTM8040 is less than 10 years, or
  • the premium spreading tests described in IPTM8055 are not met.

However, even if this is the case, the new policy will qualify if it satisfies the ‘maximum premium test’ in ICTA88/SCH15/PARA17 (2)(c)(i).

Maximum premium test

The new policy will qualify if

  • it took effect more than ten years after the date that the old policy was made, and 
  • the premiums payable for any 12 month period under the new policy do not exceed the smallest premium paid for any 12 month period under the old policy, going back to when the old policy was made.

In comparing the levels of premiums on the old and new policies, any premiums of the new policy relating to a transfer of value from the old policy must be included. This means that where there is anything other than a nominal transfer value, this test is not likely to be met.