05. The taxation of life assurance & pension-based policies

Question 1

In general, any gain is not taxable where a policy is ~, whereas a gain on a ~ policy could be subject to higher and additional rates of tax.

Answer 1

• qualifying
• non-qualifying

Question 2

When are providers likely to issue policies as non-qualifying?

Answer 2

When a policy doesn’t build up a surrender value e.g. most term insurance & WoL)

Question 3

What are the qualifying rules for WoL assurances regarding:

• policy on death
• premium rules (timeframe)
• premium rules (£)
• premium rules (£)
• sum assured

Answer 3

• to pay out a capital sum with limited other benefits e.g. WoP
• premiums must be payable at least annually for at least 10 years
• premiums paid in one year can’t be more than twice premiums paid in any other year
• no single year’s premiums can be more than 1/8 of total premiums payable during term, or 1st 10 yrs WoL
• sum assured on death must be at least 75% of premiums that would have been paid if deceased died on their 75th birthday

Question 4

When are the qualifying rules modified?

Answer 4

For friendly society policies

Question 5

Name 2 things that may affect qualifying status?

Answer 5

• If a qualifying policy lapses due to non-payment of premiums ( for longer than 13 months)
• change of life assured constitutes a new contract

Question 6

Offshore policies cannot be certified and thus won’t qualify until either what 2 things happen?

Answer 6

• life office becomes UK-authorised & premiums payable to UK branch; or
• policyholder becomes resident in UK & life fund income is chargeable to UK corp tax