IPTM8445 - Friendly society tax exempt policies: policies made before 1 May 1995
Limits on premiums or sum assured (FA12/S155)
For policies made before 1 May 1995 the limits on tax exempt policies are different from 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 tax exempt policies under which total premiums payable in any 12 month period exceed the premium 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 total premiums payable in any period of 12 months are £205, which exceeds the premium limit of £200 that applied during the period 25 July 1991 to 30 April 1995. Therefore, the second policy cannot be within the society’s tax exempt business nor can it be a qualifying policy.
If, however, the second policy had annual premiums of £75 then the limit would not be breached and it would be tax exempt and qualifying. If a third policy were taken out on 5 May 1998 with annual premiums of £70 then total premiums payable in any 12 month period for all three policies would be £265. As this is less than the limit of £270 that applies 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 on policies made before that date must not exceed the limit applying on the date the policy was 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 were transitional periods, to 31 March 1996 and 31 July 1992 respectively, during which a member could vary a policy to increase premiums to the new limits without affecting the tax exempt or qualifying status.
Provided the variation was within the transitional period, the policy would be treated for the purpose of the rules on premium limits as made on the date of the variation, not when it was actually made. The transitional provisions also ensured that such a variation did not cause a breach of the condition that premium payments must be ‘equal or rateable’ - see IPTM8430.