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HMRC internal manual

Insurance Policyholder Taxation Manual

From
HM Revenue & Customs
Updated
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Friendly society tax exempt policies: qualifying policy rules: minimum capital sums payable

As with qualifying policies generally, a tax exempt qualifying policy must only pay a capital sum on a single contingent event and must then come to an end.

In order to qualify, the contingencies specified in a tax exempt policy on which a capital sum is payable must be restricted to

  • the death of the life assured only
  • the maturity of the policy on a date specified in the policy or the earlier death of the life assured
  • the maturity of the policy or the earlier death or disability of the life assured, or 
  • the survival of the life assured until a date specified in the policy only, with no benefits payable in the event of any other circumstances such as earlier death or disability - a ‘pure endowment’ policy, see IPTM2040.

The capital sum assured on death or under a pure endowment policy must be a minimum amount, as described below. There is no minimum amount for a sum payable on disability.

Minimum sum assured on death

Where the policy provides for the payment of a capital sum on death, the rules governing the minimum sum assured on death on qualifying policies made on or after 19 March 1985, described at IPTM8030 and IPTM8035, also apply in almost all respects to tax exempt friendly society policies.

There is a very minor difference where the policy is not from a ‘new’ friendly society - see IPTM8450.

Except where the policy is one of pure endowment a tax exempt policy will always provide a capital sum on death.

A policy for a child needs to meet a different test however:

  • The Friendly Societies Act 1992 allows societies to restrict the amount payable on the death of a child under ten years old to £800, with the limit applying to all policies issued by a Society for that child.
  • In order to satisfy the qualifying policy conditions, however, each policy must provide for a full sum assured or no more than a return of premiums, in the event of the death of a child aged less than 16. Compliance with the provisions of the Friendly Societies Act 1992 does not necessarily mean, therefore, that the policies are qualifying.