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HMRC internal manual

Insurance Policyholder Taxation Manual

Substitution of a foreign policy by a UK policy: test of whether new policy qualifies

A policy issued by a company resident outside the UK after 17 November 1983 cannotbe certified as qualifying even if it meets the usual conditions, unless it is issued by aUK branch or permanent establishment of the foreign company.

However, where a new policy is issued by a UK insurer in substitution for a non-qualifyingpolicy from an overseas company it is possible for the new policy to be certified asqualifying. First, certain basic conditions must be satisfied. Then, if these conditionsare met, further tests must be applied to determine whether the new policy qualifies,depending on whether it would qualify if tested in its own right as a stand-alone policy.

Basic conditions for the new policy to qualify

  • the old policy would have met all the conditions to be qualifying had it been issued by a company or permanent establishment in the UK
  • the new policy was taken out by a person who became resident in the UK within 12 months of the date that the new policy was made
  • the new policy provides benefits that are substantially the same as those in the old policy, and
  • the insurer certifies that the new policy is in substitution for the old policy and that the old policy was issued by a company outside the UK with which they have an arrangement for making this sort of substitution.

Test where new policy would qualify if tested as a stand-alone policy

If the new policy would be a qualifying policy when tested as a stand-alone policy inits own right then it will be a qualifying policy if the tests in ICTA88/SCH15/PARA17(2)(b) described in IPTM8125 are met on the assumptionthat the old policy qualified.

Test where new policy would not qualify if tested as a stand-alone policy

If the new policy would fail to qualify when tested as a stand-alone policy onlybecause the term or premium paying term is less than ten years, or because the premiumspreading tests are not met, then it will nevertheless qualify. This is because of theprotection given by ICTA88/SCH15/PARA17 (2)(c)(ii).

If it would fail for other reasons when tested as stand-alone policy then it cannotqualify.

Substitution of a foreign qualifying policy by a UK policy

It is now unusual for a UK policy to be issued in substitution for a qualifying policyissued outside the UK. In such a case, the new policy must be tested in the same way asfor a policy substituting for a non-qualifying foreign policy, except that it is notnecessary to assume that the old policy qualified when applying the tests.

Further reference and feedback IPTM1013