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HMRC internal manual

Insurance Policyholder Taxation Manual

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HM Revenue & Customs
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Significant variation of a qualifying policy: tests for whether policy after variation qualifies: application

There are various tests to apply in determining whether the policy following thesignificant variation of a qualifying policy is also qualifying.

Does the policy after the variation meet the qualifying policy tests?

First, the policy immediately after the significant variation must be tested forwhether it meets the normal qualifying policy rules applied as if the policy was a newstand-alone policy made on the date of variation.

In applying these tests, the history of the policy before the variation is of norelevance, for instance the level of premiums previously paid does not count in applyingthe premium spreading tests or establishing the minimum sum assured.

Position where the varied policy meets the basic qualifying tests

If the policy immediately after the variation meets the basic qualifying tests then itqualifies if

  • the variation occurred at least ten years since the later of the last significant variation and the date the policy was made, or
  • the variation occurred within ten years of the later of the last significant variation and the date the policy was made, and the premium comparison test described below is met.

Premium comparison test for significant variations within ten years

This is effectively the same test as for substitutions in ICTA88/SCH15/PARA17 (2)(b)described in IPTM8125 but modified slightly to apply tosignificant variations. The significantly varied policy qualifies if the amount given bystep 1 is not less than half of the amount given by step 2.

Step 1: Calculate the highest premium payable under the varied policyfor any period of 12 months within ten years of the date that the policy was lastsignificantly varied, or was made if there were no previous significant variations.

Step 2: Then calculate the highest premium paid for any period of 12months under the policy since the earliest significant variation to have occurred on it inthe previous ten years, or since the policy was made if there was no such variation.

If there were any substitutions within the ten years before the significant variation thenthe amount calculated in step 2 must include premiums paid on the earlier ‘relatedpolicies’ in exactly the same way as in the premium comparison test forsubstitutions.

Position where the varied policy does not meet the basic qualifying tests

If the policy immediately after the variation does not meet the basic qualifying teststhen it will still qualify under the test in ICTA88/SCH15/PARA17 (2)(c)provided

  • the variation occurred more than ten years since the last significant variation, or, if there were no previous significant variations, since the policy was made, and
  • the premiums payable in any 12 month period under the policy after the variation do not exceed the smallest premium paid in any 12 month period before the variation.
Further reference and feedback IPTM1013