HMT/HMRC Statement on relief for life assurance premium contributions

12 April 2007

Background

Following the announcements made by the Government at Budget 2007 in relation to relief for life assurance premium contributions, the Association of British Insurers (ABI) have approached the Treasury (HMT) and HM Revenue and Customs (HMRC) seeking clarification on two aspects.

The first aspect relates to ‘pipeline cases’ where insurance was applied for before the Pre-Budget Report (PBR) announcement but where the policy was not processed or issued at that time. Since the recent announcement at Budget 2007, the ABI have approached HMT/HMRC seeking a further extension to the time allowed where the application was received by the insurer before 13th December 2006 but where the policy has yet to be issued because of delays in processing the application often brought about by the need for further medical evidence.

The second aspect relates to insurance companies who have continued to provide term assurance alongside pension benefits after PBR on 6th December 2006 as they believed that the review announced at PBR only covered stand alone term assurance. The ABI have asked that such cases are also treated in a similar way to pipeline cases as these have been purchased by customers in good faith.

In order to provide customers with certainty that the policies they have applied for will have sufficient time to be processed and benefit from tax relief the Government has agreed to issue further guidance in this area. The statement below is intended to provide that guidance on this particular topic in advance of Government amendments to the Finance Bill.

Statement

Pipeline cases

Those customers whose applications for policies were received by the insurer on or before the 13th December 2006 will be treated in the same way as those whose policies were issued before PBR - they will continue to benefit from tax relief, and will be unaffected by the announcement in the Budget, with the conditions below.

In all cases where an application for life insurance cover has been submitted to the insurance company and receipt recorded by that insurance company by midnight on 13th December 2006 the tax relief will apply, provided that the “sum assured” under the policy is no greater and the term no longer than that applied for. Insurers will now have until midnight on 31 July 2007 to process this business, so that appropriate medical evidence can be checked and an appropriate commencement date for cover settled.

For the avoidance of doubt applying for life insurance cover does not include merely applying for a quotation with no other commitment.

Term Assurance – Applications Received After 13 December 2006

This part of the statement relates to policies of term assurance, which have been sold as part of a personal pension scheme where the insured is also obliged by the terms of the pension scheme to have pension benefits under that scheme. It applies whether that pension was in place on or before 13th December 2006 or the application for the pension alongside the term assurance was received after 13th December.

All such cases where an application has been fully completed and submitted to the insurance company and receipt recorded by that insurance company, before midnight on 12 April 2007 will continue to benefit from tax relief, and will be unaffected by the announcement in the Budget, provided that the “sum assured” under the policy is no greater and the term no longer than that applied for. Insurers will have until midnight on 31 July 2007 to process this business, so that appropriate medical evidence can be checked and an appropriate commencement date for cover settled.

In addition any variation made to such a policy to increase the benefits under the policy or to increase the length of that policy will not cause the policy to lose the benefit of tax relief so long as the application for the variation was fully completed and submitted before midnight on 12 April 2007.