IPTM3560 | Calculating gains: part surrenders and part assignments: ‘periodic calculations’ and ‘excess events’: calculation method

Where there has been a part surrender or part assignment of rights under a policy or contract a ‘periodic calculation’ must be made at the end of the insurance year to see whether a gain has arisen. There is a gain if the net total value of rights surrendered or assigned exceeds the net total allowable payments.

If this calculation does not show a gain then no chargeable event is treated as arising. If it does show a gain then either an ‘excess event’ (IPTM3570) or, in special cases, one or more ‘part surrender or assignment events’ (IPTM3575) are treated as arising.

Examples of ‘periodic calculations’ giving rise to ‘excess events’ are given in helpsheets HS320 and HS321. A more detailed example is given at IPTM7620.

Net total value of rights surrendered or assigned

• The values, as at the time of surrender or assignment, of any parts of or part shares in the rights under the policy or contract which have been surrendered at any time, or assigned at any time for money’s worth, together with

• the values, as at the time of assignment, of any parts of or shares in the rights under the policy or contract which have been assigned otherwise than for money or money’s worth in an insurance year beginning on or before 5 April 2001

less

• the sum of each value brought into net total value of rights surrendered or assigned calculations for previous ‘calculation events’ other than ‘personal portfolio bond events’, if any - see IPTM3555.

Net total allowable payments

The allowable element in each allowable payment is the amount of the payment multiplied by y/20, where ‘y’ is the number of insurance years, not exceeding 20, beginning with the year in which the payment is made and ending with the insurance year as at the end of which the calculation is required.

Allowable payment means any premium, except:

• a retained replacement policy premium – see IPTM3520

• repayment of a loan made on a policy treated as a part surrender – see IPTM3545.

Net total allowable payments comprise:

• the sum of all the allowable elements for all allowable payments, less

• the sum of all the allowable elements brought into account on the last calculation event, if any.

The value of rights partially surrendered or assigned is explained at IPTM3565.

Slightly different rules apply where the policy or contract was made before 14 March 1975. Refer if necessary, to IPTM7650.