Chapter 5- Taxation Of Life Assurance and Pension-based Protection Products

Question 1

What is generally meant by qualifying

Answer 1

Any gain is not taxable

Question 2

What is the annual premium limit for qualifying policies

Answer 2

£3600

Question 3

What really the qualifying rules for temporary insurances over 10 years

Answer 3

1. Must secure calitL on death and no other benefits
2. Other permitted benefits are WOP, surrender value am annuity options, disability benefits of a capital nature
3. Premiums must be payable at least annually for at lease 10 years or 3/4 of the term
4. Total premiums in one year must not exceed 2x total premiums in any other year or 1/8 of total. Premiums
5. Capital sum on death must not be less than 75% of the premiums that would have been payable I’d death were to occurs on 75th birthday
   6 where benefits can be paid as a lump sum or series of sums, the rule operates on the smaller

Question 4

What are the qualifying rules of term assurance less than 10 years

Answer 4

1. Must secure sum on death and no other benefits
2. Permitted other benefits include participation I profits, surrender values, annuity options, increasable options, WOP, disability benefits of a capital nature
3. Any surrender value must not exceed premiums paid
4. Minimum 1 year term

Question 5

What are the qualifying rules for whole of life

Answer 5

Must secure capital on death and no other benefits
Other benefits same as for < 10 years
Premiums must be payable at least annually
Surrender value and 75 rule apply

Question 6

What are the qualifying rules for Endowments

Answer 6

1. Must secure capital payment on death and no other benefits
2. Other benefits may be included except those of a capital nature
3. Premium rules same as >10 year
   75 rule app,ids except reduced by 2% for each year the life assured exceeds 55 at outset
   Where SA is payable in instalments the total is used for this purpose
   If a cash option is shown this will be used

Question 7

How is the 75 qualifying rule applied on joint life policies on both first and second life

Answer 7

First is older life

Second is younger life

Question 8

What is the position regarding whether family income benefit policies qualify

Answer 8

Qualify if income and assurance would have qualified seperately or if the overall policy meets the conditions for a WOL or endowment policy

Question 9

How does loading for premiums paid more than annually affect qualifying rules

Answer 9

It is ignored

Question 10

What is the max length of backdating for qualifying rules

Answer 10

3 months

Question 11

What is the time limit for reinstatement of a policy to continue to qualify

Answer 11

13 months

Question 12

How does a change of life assured affect a qualifying policy

Answer 12

Usually no longer qualifies due to significant change but if it is deemed qualifying then deemed qualifying from date of original policy

Question 13

Is a divorce settlement seen as consideration in relation to qualifying rules

Answer 13

Yes

Question 14

Can offshore policies be qualifying

Answer 14

No

Question 15

When was the premium limit introduced for qualifying policies and what is the name for policies affected before this date

Answer 15

21st March 2012

Protected policies

Question 16

What policies are exempt from the premium limit introduced in 2012

Answer 16

Policies before 21/3/12
Pure protection policies wo surrender value
Existing mortgage endowment policies maintained for sole purpose of maying interest only mortgage

Question 17

How are restricted relief qualifying policies taxed

Answer 17

Partly qualifying partly non qualifying

Question 18

What are restricted relief policies

Answer 18

Set up during transition period between 12/03 and 5/04

Question 19

How does assigning a policy which was set up before the 6/4/13

Answer 19

Not affected

Question 20

Under what conditions will an assignment caus a policy to become a restricted relief policy after 6/4/13

Answer 20

Divorce settlement
Court order
Between spouses
In or out of a trust

Question 21

In what circumstances must a beneficiary write a written statement to the provider to confirm a policy meets rrp status

Answer 21

If issues after 6/5/13
If altered
If assigned 
Inheritance of a policy 
If not done policies become no qualifying

Question 22

How are life funds taxed

Answer 22

19%

Question 23

How are offshore funds taxed

Answer 23

No tax until surrendered to a uk policy holder at which point income tax is chargeable

Question 24

What is a gain made on a life policy profits

Answer 24

Chargeable gain

Question 25

What tax are chargeable gains subject to

Answer 25

Income tax and possibly CGT

Question 26

What are the 5 chargeable events on non qualifying policies

Answer 26

``` Death Assignment for money Maturity Part surrender Surrender ```

Question 27

What are the 2 potential chargeable events on qualifying policies and in which circumstance are they chargeable

Answer 27

Death and maturity if made paid up within ten years or 3/4of the term

Question 28

In what circumstances on death does a chargeable event occur

Answer 28

If the surrender value plus relevant capital payments exceed the premiums paid plus the total gains On previous chargeable gains

Question 29

In what circumstances do maturity or surrender cause a chargeable event

Answer 29

If amount paid out plus relevant capital payments exceeds premiums paid plus total gains on any previous chargeable events. If the sa is paid in insyallements the calculation is the capital value of the instalments

Question 30

In what circumstance does assignment cause a capital event

Answer 30

If total consideration plus any relevant capital payments exceeds the premiums paid plus total gains on previous chargeable gains

Question 31

What is meant by"relevant capital payments" in relation to determining whether a chargeable event has occurred

Answer 31

5% tax deferred withdrawals

Question 32

What is the formula for working out the tax relief on RRQPs

Answer 32

Tax relief = total allowable premium/total premiums payable x gain

Question 33

How are chargeable gains taxed

Answer 33

Only at higher and additional rate as basic rate is deemed to be paid within the fund

Question 34

How is the gain sliced if it pushes someone over the tax bracket for tax purposes on chargeable gains

Answer 34

Gain/Years policy in force =amount added to income for year, and taxed accordingly

Question 35

What is Alex consideration with chargeable gains that push someone over the additional rate tax bracket

Answer 35

Loss of personal allowance at rate of £1 for every £2 over

Question 36

In what circumstances is the trustee liable for tax on a chargeable gain

Answer 36

If event occurs in tax year after the individual dies and 1 or more trustee is a uk resident If creator still alive but resident outside uk immediately before the event

Question 37

How much tax is payable on a chargeable gain in trust

Answer 37

45% minus 20% basic tax credit

Question 38

In what circumstances us the creator of the trust liable for tax from the chargeable gain

Answer 38

If alive and uk citizen immediately before event | If event takes place in the tax year in which the individual dies

Question 39

In what circumstance is a beneficiary liable for tax on a chargeable gain

Answer 39

If none of the trustees live in the uk

Question 40

Does a beneficiary receive top slicing relief if they have to pay tax on chargeable gain

Answer 40

No

Question 41

How is tax on a chargeable gain administered

Answer 41

It is the responsibility of the person liable to declare it on tax return

Question 42

Are pension policies effected by chargeable gain taxation

Answer 42

No

Question 43

How are second hand policies taxed

Answer 43

Selling could be chargeable event subject to income tax and when second hand owner recieves the proceeds could be subject to CGT

Question 44

How are offshore policies taxed

Answer 44

Broadly same as onshore but fund doesn't py tax so taxed in full on gain, not just higher/additional amount

Question 45

What is the rate of IHT over the nil rate band

Answer 45

40% or 36% if 10% of estate left to charity

Question 46

What is the annual exemption for IHT

Answer 46

£3000

Question 47

What is the tapered relief on IHT on PETS

Answer 47

``` 0-3 = 40% 3-4 = 33% 4-5=24% 5-6=16% 6-7=8% ```

Question 48

How are pets valued

Answer 48

Loss to estate

Question 49

Do you pay IHT if paying back creditors

Answer 49

No

Question 50

Are premiums for a life policy taxed by IHT

Answer 50

No usually part of £3000 exemption, gift allowance or normal expenditure allowance

Question 51

How can you insure against PETs

Answer 51

Use a decreasing term assurance to protect against IHT and level term assurance to cover potential decrease in nil rate band