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Consultation on part-surrenders and part-assignments of life insurance policies

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HMRC is consulting until 13 July 2016 on three options for changing the tax rules in relation to part-surrenders and part-assignments of life insurance policies, capital redemption policies and life annuity contracts. Current rules allow policyholders to surrender or assign up to an annual cumulative 5% allowance of the premium paid without incurring a tax charge. If the value received exceeds the allowance, a gain is brought into charge at the next policy anniversary date. In certain circumstances, this can result in gains arising which are disproportionate to the policy’s underlying economic gain.

The alternative options proposed are:

·       taxing the ‘economic gain’ on a proportionate fraction of any withdrawals above 5%;

·       replacing the current cumulative annual 5% allowance with a 100% lifetime allowance; or

·       deferral of ‘excessive gains’ above a predetermined amount.


Issue: 1306
Categories: News