SolvedIPTM3575 | Calculating gains: part surrenders and part assignments: ‘periodic calculations’ and ‘excess events’: assignments involving co-ownership
From HM Revenue & Customs · Insurance Policyholder Taxation Manual
The co-ownership rules are a technical measure to ensure that, for tax purposes, only those owners that have reduced their share in the ownership interest of a policy or contract are treated as having made an assignment giving rise to a chargeable event.
Without the co-ownership rules, general law would apply and those owners whose share has not been reduced might have been liable on gains on an assignment. An example is given at the end of this section.
Co-ownership rules
Where a transaction is within the co-ownership rules, it is taken to be one or more assignments of part of the rights under the policy or contract. The rules apply to a transaction where:
immediately before the transaction the whole or part of, or a share in, the rights under the policy or contract, called the ownership interest, was in the beneficial interest of one person or more than one person jointly, called the old ownership, and as a result of the transaction the ownership interest becomes beneficially owned by one person, or more than one person jointly or in common, called the new ownership, and
at least one person among the old ownership is among the new ownership, and
any of the following circumstances applies:
| If there is … | Treatment of the co-ownership transaction is … |
|---|---|
| only one member of the old ownership | as if the transaction had been assignment of amount of reduction in that member’s share |
| more than one member of the old ownership: member ceases to be a member | as if any ceasing member had assigned their share |
| more than one member of the old ownership: member reduces share | as if the transaction had been assignment of amount of reduction in share |
| more than one member of old ownership beneficially entitled jointly | as if that old ownership interest had been in equal shares rather than jointly |
| more than one member of new ownership beneficially entitled jointly | as if that new ownership interest is in equal shares rather than jointly. |
Example
A policy is jointly owned by A and B equally. B pays a sum to A and takes over sole ownership. Under general law in England and Wales, this would normally be a whole assignment of the policy and A and B would each be liable to tax on half the gain even though, economically, B has acquired additional rights rather than disposed of them.
Under the co-ownership rules, A is treated as assigning half the rights under the policy to B and is taxed on the gain arising under the part assignment rules. B is not liable on any part of the gain on the assignment.