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IPTM3545 | Calculating gains: part surrenders and part assignments: ‘periodic calculations’ and ‘excess events’: events treated as part surrenders

From HM Revenue & Customs · Insurance Policyholder Taxation Manual

The following events are treated as part surrenders of rights

  • the making of a loan by an insurer under a policy or contract to a person who would, if a gain arose under the policy or contract, be chargeable under the chargeable event regime - applies to policies or contracts made on or after 27 March 1974

  • an ‘income payment’ under a guaranteed income bond, unless it is the final benefit paid under the contract, see IPTM3550

  • in the case of a life annuity contract which provides for a capital sum to be taken as an alternative in part to the annuity payments, taking the capital sum

  • a sum payable as a result of a right under a policy or contract to participate in profits where further rights remain under it - this would only arise on older type with-profits life policies providing for annual or ‘reversionary’ bonuses to be payable, rather than reinvested as is generally the case with modern with-profits policies.

A loan is treated as made by an insurer if it is made under an arrangement with it, and is treated as made to a person if it is made at their direction, so including third party loans.

Any unpaid interest under the loan added by the insurer to the loan account falls to be treated as further loans and thus part surrenders.

There are exceptions to this rule for

  • loans made under a contract for a life annuity if all the interest is eligible for tax relief under the provision at ICTA88/S365 that grants relief for the purchase of life annuities

  • loans under qualifying policies on which interest is payable at a commercial rate or are used for the purchase of only or main residences by the insurer’s staff

  • loans made to trustees on policies or contracts made before 9 April 2003

  • loans in respect of a policy made before 14 March 1989, and not subsequently varied so as to extend the term or increase the benefits, where the chargeable person would be a company.