Anti avoidance : Life insurance policies
Gains from life insurance policies, life annuity contracts and capital redemption policies are taxed as income. The charge arises on the occurrence of a 'chargeable event gain' such as the maturity of a policy.
The Government announced today changes to the rules in calculating gains from certain policies and contracts.
The changes confirm that gains, which are subject to income tax, are not reduced by any untaxed gains earlier in the life of the policy or contract.
In addition, income gains are not reduced by the use of certain cluster arrangements. In addition, the Government has announced a consultation on reform to the time apportionment of gains when the taxpayer is not resident in the UK for a period.
Who will be affected?
UK resident individuals who own life insurance policies, life annuity contracts and capital redemption policies, where there have been gains earlier in the life of the policy which were not subject to income tax, or certain cluster policy arrangements which defer income tax until the final policy in the cluster comes to an end.
The measures take immediate effect.
It was predictable that HMRC would seek to negate tax planning strategies along these lines. We hope that any future consultations in relation to policies held whilst a taxpayer was non-resident would not seek to restrict the measure of relief currently available.