IPTM3740 | Foreign policies: reduction for non-UK policyholder: example

From HM Revenue & Customs · Insurance Policyholder Taxation Manual

Transactions

Michael takes out a life policy on 17 March 1997 from an insurer based in Jersey whilst working in Germany.
He returns to the UK on 20 April 2001 and is UK resident from that date.
He fully surrenders the policy on 5 October 2005, giving rise to a chargeable event gain of £10,750.

The policy is a ‘foreign policy’ within the definition in IPTM3330 so an apportionment of the gain applies, as described in IPTM3730. There must also be a restriction in the number of years for top-slicing relief, as described in IPTM3830.
The policy ran for a total of 3,125 days, including the days on which it was made and surrendered. Michael was not resident in the UK for 1,495 days of this period.
Michael is due a reduction in the gain of £10,750 x (1,495/3,125) = £5,143. Thus he is liable on a gain of £5,607, which is the figure that should be entered on his tax return for the 2005-06 tax year.
The policy ran for 8 complete years. Michael was non-resident for 4 complete years so the number of years for top-slicing relief to be entered on the tax return must be reduced to the 4 in which he was UK resident.