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HMRC internal manual

Trusts, Settlements and Estates Manual

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HM Revenue & Customs
Updated
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Capital items that are income for tax purposes: UK life assurance gains

These instructions refer to gains on:

  • UK life assurance policies
  • life annuities
  • capital redemption policies.

Not all policies give rise to chargeable event gains. See IPTM1540. External customers can find this guidance at

Gains deemed to be income

ITTOIA/S461 deems chargeable event gains to be income for tax purposes.

Person taxable

Chargeable event gains of a bare or simple trust are chargeable on the beneficiary including a beneficiary who is a minor with an absolute interest

If the rights of a policy are held in trust, any gain resulting from a chargeable event is usually chargeable on the settlor. If it is the death of the settlor that gives rise to the gain it is attributable to him. However the gain is chargeable on the trustee if any of the following apply:

  • the rights under the policy are held by the trustees on charitable trusts
  • the rights under the policy are held by the trustees on non-charitable trusts and:
  • the individual who created the trust is not resident in the UK at the time of the chargeable event
  • the individual who created the trust is dead at the time of the chargeable event - but see IPTM3240 where the event occurs in the tax year in which the settlor died. External customers can find this guidance at .
  • a company or other entity created the trust, and is not resident in the UK at the time of the chargeable event
  • a company or other entity created the trust, and has come to an end (for example, been liquidated) at the time of the chargeable event.
  • the rights under the policy are held as security for a debt owed by the trustees

Trustees’ income - rate of tax

Gains that are charged on the trustees are chargeable at the trust rate (ITA/Sections 481 and 482). Some chargeable event gains have tax treated as paid at the basic rate (20% from 2008-09; before that at the 20% savings rate) and trustees chargeable at the trust rate have to account only for the further 20%. The tax treated as paid is notional and cannot be repaid, and from 2007-08 cannot enter the tax pool - see TSEM3021. However, for 2006-07 trustees who have such gains can include all the tax on this deemed income in their tax pool.

Where the rights under the policy are held by the trustees on charitable trusts or where the policy is held as security for a debt owed by the trustees, the trustees are taxable at the basic rate only.

Gains to be excluded from return

A gain is not deemed to be income of trustees, and not entered on the Trust and Estate Tax Return if

  • the policy or life annuity was made before 17 March 1998; and
  • the policy or life annuity has not been enhanced after 17 March 1998 by paying additional premiums or in any other way; and
  • the trust or trusts were created by an individual who died before 17 March 1998, or if created by more than one person, at least one of those persons was an individual who died before this date.

Help sheet HS320 has more information. External customers can find this guidance at