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IPTM2020 | Qualifying policies and life assurance premium relief: outline of qualifying policy rules

From HM Revenue & Customs · Insurance Policyholder Taxation Manual

Qualifying policy conditions

The detailed rules governing whether a policy is a qualifying one are set out at ICTA88/SCH15. Insurers will take steps to determine whether the policies they are writing are qualifying or non-qualifying and will inform their customers accordingly. The guidance at IPTM8000 onwards is written primarily with insurers in mind and covers the rules in some detail.

The main conditions are, broadly :

  • the policy term must be ten years or more

  • premiums must be payable yearly or more frequently

  • the level of premiums must be reasonably smooth - the rules are complex, but in essence the premiums paid in any 12 month period must not exceed

- twice the premiums in any other 12 month period

- one-eighth of the total premiums paid for a period of ten years or, in the case of an endowment or term policy, its specified term

  • (for policies taken out on or after 1 April 1976) if the policy has a surrender value, the sum assured must be not less than 75 per cent of the premiums payable

- during its term, if an endowment policy

- within a specified premium payment term, if a whole life policy until age 75 in the case of a whole life policy with no specified premium term.

  • the policy must be issued by a UK company or through a UK branch or permanent establishment of an overseas resident insurer.

  • for policies issued or varied from 21 March 2012, annual premiums payable under all such policies must not exceed £3,600

The 75 per cent of premiums rule is modified in certain cases:

  • an endowment policy (defined at IPTM2040) where the insured life exceeds 55 when the policy is taken out – the 75% figure is reduced by 2% for each year over 55. For joint life policies, this age test applies to the eldest life assured where the sum is paid on the first death, and to the youngest life assured where the sum is paid on the last death.

  • a term policy with no surrender value that does not run beyond age 75 - the rule is disapplied.