IPTM6210 | Immediate Needs Annuities: tax treatment: payments made to a registered care provider: general rules and scope: ITTOIA05/S725

General rules

In general, certain payments under a policy which qualified as an Immediate Needs Annuity when it was taken out are not taxable income of the insured person. Such payments are those:

• made to a registered care provider

• for the care of the person protected under the policy.

Immediate Needs Annuity policies taken out before 1 October 2004, which would have met the qualifying conditions at the time of being taken out, would also be included within this exemption.

To qualify for the exemption, a policy must meet the qualifying conditions when it was taken out. In other words, an ‘ordinary’ Purchased Life Annuity - see IPTM4220 - cannot become an Immediate Needs Annuity. Where an existing contract is topped up, for example to provide for personal or nursing care, the likelihood is that the ‘top-up’ would constitute a new contract and this could meet the qualifying conditions.

It is possible to buy an Immediate Needs Annuity on ‘the life of another’. Payments under such a policy can qualify for the exemption.

The detailed rules are set out below.

If any payment, or any part of any payment, is made directly to the insured person or after their death, see IPTM6220.

Scope of the exemption: ITTOIA05/S725

Payments received from an insurance policy are exempt from tax if they are made

• under a policy which qualifies as an Immediate Needs Annuity - see IPTM6215

• for the benefit of the person protected by that policy, and

• to a registered care provider for care of that person - see IPTM6215.

Tax treatment: registered care provider

A payment from an insurer under an Immediate Needs Annuity received by a care provider that is not a local authority will generally be a trade receipt. Further advice is available at BIM40050 onwards.