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HMRC internal manual

Insurance Policyholder Taxation Manual

Friendly society tax exempt policies: policies made before 1 May 1995

Limits on premiums or sum assured

For policies made before 1 May 1995 the limits on tax exempt policies are differentfrom those applying to policies made on or after that date, which are described in IPTM8410.

Where a policy was made

  • before 1 May 1995 but on or after 25 July 1991, premiums must not exceed £200 in any 12 month period, or £222.22 if premiums are payable more frequently than annually
  • before 25 July 1991 but on or after 1 September 1990, the premium limits are £150 and £166.66 respectively
  • before 1 September 1990 but on or after 1 September 1987, the premium limits are £100 and £111.11 respectively
  • before 1 September 1987 but on or after 14 March 1984, there is no premium limit but the gross sum assured must not exceed £750
  • before 14 March 1984, the gross sum assured must not exceed £500.

Limits on policies that may be held by a single person

A member who holds a policy that was made before 1 May 1995 may not hold other taxexempt policies under which total premiums payable in any 12 month period exceed thepremium limit that applied on the date on which that policy was made.

For example, suppose a member holds a policy made on 7 July 1992 with annual premiums of£120 and another policy made on 10 May 1994 with annual premiums of £85. The totalpremiums payable in any period of 12 months is £205, which exceeds the premium limit of£200 that applied during the period 25 July 1991 to 30 April 1995. Therefore, the secondpolicy cannot be within the society’s tax exempt business and nor can it be aqualifying policy.

If, however, the second policy had annual premiums of £75 then the limit would not bebreached and it will be tax exempt and qualifying. If a third policy were taken out on 5May 1998 with annual premiums of £70 then total premiums payable in any 12 month periodfor all three policies would be £265. As this is less than the limit of £270 thatapplies from 1 May 1995 the third policy will also be tax exempt.

Where a policy was made before 1 September 1987, the total sum assured onpolicies made before that date must not exceed the limit applying on the date the policywas made.

Transitional rules when premium limits were increased in 1991 and 1995

When the premium limits were raised on 1 May 1995 and 25 July 1991, there weretransitional periods, to 31 March 1996 and 31 July 1992 respectively, during which amember could vary a policy to increase premiums to the new limits without affecting thetax exempt or qualifying status.

Provided the variation was within the transitional period, the policy would be treated forthe purpose of the rules on premium limits as made on the date of the variation, not whenit was actually made. The transitional provisions also ensured that such a variation didnot cause a breach of the condition that premium payments must be ‘equal orrateable’ - see IPTM8430.

Further reference and feedback IPTM1013