IPTM8410 - Friendly society tax exempt policies: premium limits: sole policyholders

Amount of premium that may be invested in a tax exempt policy

Premiums payable under any single friendly society tax exempt policy made on or after 1 May 1995 must not exceed £270 in any 12 month period, or £300 if premiums are payable more frequently than annually, for instance quarterly or monthly (FA12/S155). See IPTM8445 where the policy was made before 1 May 1995.

Holdings of more than one tax exempt policy

An individual member of a friendly society may hold more than one tax exempt policy, either with that society or other societies. However, the member must not at any time hold tax exempt policies made on or after 1 May 1995 under which the total premiums payable in any 12 month period exceed £270, or £300 if premiums are payable more frequently than annually. See IPTM8445 where a member holds policies made before 1 May 1995.

If an individual does exceed this limit in any 12 month period, then neither the policy that causes the premium limit to be breached, nor any subsequent policies taken out in the same year, can be qualifying – this follows from the qualifying policy rule at ICTA88/SCH15/PARA6. If policies in breach of the rule are held with the same society as the earlier, valid tax exempt policies, they cannot be within tax exempt business. But if they are with a different society then they will remain within tax exempt business.

To help ensure that invalid tax exempt policies are not taken out, friendly societies should check with prospective policyholders that they do not already have a tax exempt policy with another society that might cause the limit to be breached.

Example

Suppose an individual invested £120 into a tax exempt policy with one friendly society, then £220 into a policy with the same society and £100 with a different society, all by way of monthly payments and all within 12 months. Premiums paid on the second and third policies would cause the premium limit of £300 to be breached and the policies would not qualify. The second policy is with the same society so is not within tax exempt business. But the third policy is with a different society so remains within tax exempt business. There is no provision to ‘correct’ the second policy and turn it into a tax exempt policy by withdrawing the excess of £40.