BN 16: Qualifying Life Insurance Policies
Who is likely to be affected?
1. Some holders of qualifying life insurance policies whose terms are varied.
General description of the measure
2. This measure ensures that unexpected tax effects do not arise for holders of qualifying life assurance policies in certain circumstances. These circumstances are where there is a variation in the method for calculating the investment return to holders of the policies, for instance from withprofits to non profit unit-linked. In the past these variations have often been linked with transfers of insurance business from one insurance company to another.
Operative date
3. The amendment applies to the type of variation described above taking place on or after 7 October 2005. It also applies retrospectively to similar variations that took place under court-approved insurance business transfer schemes.
Current law and proposed revisions
4. Under the complex qualifying policy rules appearing at Schedule 15 to the Income and Corporation Taxes Act 1988 a policy needs to be re-tested if its terms are varied significantly. The result of this may be an unexpected tax charge when the policy is later assigned or comes to an end. Older policies still attracting life assurance premium relief may also lose this relief.
5. The proposed amendment will mean that variations that merely alter the method for calculating the investment returns allocated by the insurer to policyholders are disregarded, and will preserve the position for variations that formed part of an insurance business transfer scheme.
Further advice
6. If you have any questions about this change, please contact Victor Baker (020 7147 2606). Information about Budget measures is now available.
