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HMRC internal manual

Insurance Premium Tax

Liability of insurance contracts: Long-term business: Purpose of the exemption

Most of the classes of long-term insurance are linked to providing financial protection and investment by paying out in the event of:

  • a person’s death, to provide for their families (Life and Annuity), or to cover the value of income from property of the deceased (linked long term business (class III) and with profit endowment policies (class I));
  • incapacitation (Permanent Health Insurance or PHI);
  • marriage or birth;
  • retirement or an event requiring redemption of capital (Pensions Fund management and Capital Redemption);
  • maturity of a policy.

These classes cover in the main insurance, which is used as a means of saving. It was thought inequitable to tax one particular method of saving as opposed to another, hence the exemption. The various classes of long-term insurance are reproduced at paragraph 5.1.1 of Notice IPT1.