Chapter 5- Taxation Of Life Assurance and Pension-based Protection Products Flashcards
What is generally meant by qualifying
Any gain is not taxable
What is the annual premium limit for qualifying policies
£3600
What really the qualifying rules for temporary insurances over 10 years
- Must secure calitL on death and no other benefits
- Other permitted benefits are WOP, surrender value am annuity options, disability benefits of a capital nature
- Premiums must be payable at least annually for at lease 10 years or 3/4 of the term
- Total premiums in one year must not exceed 2x total premiums in any other year or 1/8 of total. Premiums
- 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
What are the qualifying rules of term assurance less than 10 years
- Must secure sum on death and no other benefits
- Permitted other benefits include participation I profits, surrender values, annuity options, increasable options, WOP, disability benefits of a capital nature
- Any surrender value must not exceed premiums paid
- Minimum 1 year term
What are the qualifying rules for whole of life
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
What are the qualifying rules for Endowments
- Must secure capital payment on death and no other benefits
- Other benefits may be included except those of a capital nature
- 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
How is the 75 qualifying rule applied on joint life policies on both first and second life
First is older life
Second is younger life
What is the position regarding whether family income benefit policies qualify
Qualify if income and assurance would have qualified seperately or if the overall policy meets the conditions for a WOL or endowment policy
How does loading for premiums paid more than annually affect qualifying rules
It is ignored
What is the max length of backdating for qualifying rules
3 months
What is the time limit for reinstatement of a policy to continue to qualify
13 months
How does a change of life assured affect a qualifying policy
Usually no longer qualifies due to significant change but if it is deemed qualifying then deemed qualifying from date of original policy
Is a divorce settlement seen as consideration in relation to qualifying rules
Yes
Can offshore policies be qualifying
No
When was the premium limit introduced for qualifying policies and what is the name for policies affected before this date
21st March 2012
Protected policies
What policies are exempt from the premium limit introduced in 2012
Policies before 21/3/12
Pure protection policies wo surrender value
Existing mortgage endowment policies maintained for sole purpose of maying interest only mortgage
How are restricted relief qualifying policies taxed
Partly qualifying partly non qualifying
What are restricted relief policies
Set up during transition period between 12/03 and 5/04
How does assigning a policy which was set up before the 6/4/13
Not affected
Under what conditions will an assignment caus a policy to become a restricted relief policy after 6/4/13
Divorce settlement
Court order
Between spouses
In or out of a trust
In what circumstances must a beneficiary write a written statement to the provider to confirm a policy meets rrp status
If issues after 6/5/13 If altered If assigned Inheritance of a policy If not done policies become no qualifying
How are life funds taxed
19%
How are offshore funds taxed
No tax until surrendered to a uk policy holder at which point income tax is chargeable
What is a gain made on a life policy profits
Chargeable gain
What tax are chargeable gains subject to
Income tax and possibly CGT
What are the 5 chargeable events on non qualifying policies
Death Assignment for money Maturity Part surrender Surrender
What are the 2 potential chargeable events on qualifying policies and in which circumstance are they chargeable
Death and maturity if made paid up within ten years or 3/4of the term
In what circumstances on death does a chargeable event occur
If the surrender value plus relevant capital payments exceed the premiums paid plus the total gains On previous chargeable gains
In what circumstances do maturity or surrender cause a chargeable event
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
In what circumstance does assignment cause a capital event
If total consideration plus any relevant capital payments exceeds the premiums paid plus total gains on previous chargeable gains
What is meant by”relevant capital payments” in relation to determining whether a chargeable event has occurred
5% tax deferred withdrawals
What is the formula for working out the tax relief on RRQPs
Tax relief = total allowable premium/total premiums payable x gain
How are chargeable gains taxed
Only at higher and additional rate as basic rate is deemed to be paid within the fund
How is the gain sliced if it pushes someone over the tax bracket for tax purposes on chargeable gains
Gain/Years policy in force =amount added to income for year, and taxed accordingly
What is Alex consideration with chargeable gains that push someone over the additional rate tax bracket
Loss of personal allowance at rate of £1 for every £2 over
In what circumstances is the trustee liable for tax on a chargeable gain
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
How much tax is payable on a chargeable gain in trust
45% minus 20% basic tax credit
In what circumstances us the creator of the trust liable for tax from the chargeable gain
If alive and uk citizen immediately before event
If event takes place in the tax year in which the individual dies
In what circumstance is a beneficiary liable for tax on a chargeable gain
If none of the trustees live in the uk
Does a beneficiary receive top slicing relief if they have to pay tax on chargeable gain
No
How is tax on a chargeable gain administered
It is the responsibility of the person liable to declare it on tax return
Are pension policies effected by chargeable gain taxation
No
How are second hand policies taxed
Selling could be chargeable event subject to income tax and when second hand owner recieves the proceeds could be subject to CGT
How are offshore policies taxed
Broadly same as onshore but fund doesn’t py tax so taxed in full on gain, not just higher/additional amount
What is the rate of IHT over the nil rate band
40% or 36% if 10% of estate left to charity
What is the annual exemption for IHT
£3000
What is the tapered relief on IHT on PETS
0-3 = 40% 3-4 = 33% 4-5=24% 5-6=16% 6-7=8%
How are pets valued
Loss to estate
Do you pay IHT if paying back creditors
No
Are premiums for a life policy taxed by IHT
No usually part of £3000 exemption, gift allowance or normal expenditure allowance
How can you insure against PETs
Use a decreasing term assurance to protect against IHT and level term assurance to cover potential decrease in nil rate band
