Friendly society tax exempt policies: introduction and overview
Tax exempt business in the books of the friendly society
Friendly societies are exempt from corporation tax on life insurance business conducted with members provided the policy premiums do not exceed certain limits. The limits have changed over the years. IPTM8410 gives the limits and describes how they operate.
Members of a friendly society will usually be resident in the UK, but there is no reason why a non-resident cannot hold a tax exempt policy and such a policy can continue if the policyholder moves overseas.
There are no age restrictions on holders of tax exempt policies. Children can, and frequently do, hold tax exempt policies.
Tax exempt policy in the hands of the policyholder
Tax exempt policies need to be written as qualifying policies to ensure that they are also free from tax in the hands of the policyholder. A qualifying tax exempt policy is often known as a tax exempt savings policy or ‘TESP’.
There are special rules in ICTA88/SCH15/PARA3 to determine whether a friendly society tax exempt policy written on or after 19 March 1985 qualifies. These are described in IPTM8420 onwards.
A tax exempt policy written before 19 March 1985 is automatically a qualifying policy unless varied after that date, in which case it must meet the special qualifying policy rules for tax exempt policies.