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PENNY BATES considers the first principles of the taxation of gains on UK non-qualifying life assurance policies
KEY POINTS
- The difference between qualifying and non-qualifying policies.
- When might a chargeable event gain arise?
- The 5% tax-free partial surrender.
- The tax liability and top-slicing relief.
- Some traps to avoid.
There is often some confusion over the taxation of life assurance gains which is understandable bearing in mind the language used of ‘qualifying’ and ‘non-qualifying policies’ ‘assignments’ ‘top-slicing relief’ etc. But I hope to be able to cover the basics clearly in this article illustrating these with a number of examples dealing with UK residents and UK policies.
There are two aspects to life assurance policies. The first is the fund held by the insurance company on behalf of the policyholder and the second is how any payments to the policyholder are taxed when funds are encashed.
The...
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