IPTM3900 | Policies and contracts owned by companies: application of the loan relationships rules: scope and commencement

Following FA08/SCH13, where a company other than a life insurance company is a party to an ‘investment life insurance contract’, this is treated as a loan relationship of the company. It is taxed as a creditor relationship under the loan relationships rules in CTA09/PT6/CH11, rather under the chargeable event gain rules, with any profits or losses arising treated as non-trading credits or debits of the company.

Whether a company is a party to an investment life insurance contract will follow in the same way as for other loan relationships that a company might be party to. Where a company is the beneficial owner of rights under an insurance contract it will be a party to that contract. This and the following pages consider the specific application of the loan relationships rules to investment life insurance contracts.

Meaning of investment life insurance contract

An ‘investment life insurance contract’ is:

• a life insurance policy which has a surrender value or is capable of acquiring one, so for instance a protection-only term assurance single life or group life policy is not within this definition

• a purchased life annuity contract, or

• a capital redemption policy.

Two types of policy or contract are excluded from this definition. Firstly, those held for the purposes of a registered pension scheme. Secondly, life policies made before 14 March 1989 and not varied on or after that date so as to increase the benefits secured or extend the term. They are not within the chargeable event gain rules and they remain outside the scope of charge under the loan relationships rules.