IPTM7220 | Reporting requirements for policy in a void ISA: events and certificates

Void ISAs and termination events

The ISA is ‘void’ and the policy should automatically terminate (policy in a void ISA) where:

• the policy has ceased to meet the conditions to be held as a qualifying investment in a valid ISA, or

• those conditions were not met on the date that the policy was taken out.

Where an ISA manager discovers a life policy is held in a void ISA, the policy must terminate if it hasn’t already come to an end on death, surrender or maturity. In either case, what is called a ‘termination event’ arises. This is the earliest of:

• the voiding circumstances coming to the notice of the ISA manager

• the coming to an end of the policy (the end of the final insurance year – see IPTM3505).

See IPTM7395 for further information.

Where the ISA manager is not the insurer, it must notify the insurer within 30 days of discovering that the ISA is void that there has been a termination event and the circumstances which have caused the ISA to be void.

Chargeable events prior to a termination event

Where a chargeable event has occurred prior to a termination event, the exemption from tax provided by the policy being held within an ISA no longer applies. The only such events possible are excess events on earlier part surrenders since policies held in ISAs cannot be assigned in whole or part.

Reporting requirements for a termination event and excess events prior to a termination event

Certificates to investor.

Where there has been a termination event, chargeable event certificates must be issued to the ISA investor reporting

• the termination event if a gain has arisen on the event, and

• any excess events and gains which have occurred before the termination event.

The information to be provided on the certificate is the same as that required for general chargeable events other than whole assignments, as listed in IPTM7125, except income tax treated as paid, which is not available on gains on policies in void ISAs. As a termination event is a deemed surrender, it may be reported on the certificate as a full surrender.

The time limit for providing the certificate to the investor is three months from the date that the insurer first becomes aware of the termination event, either because it has been notified of the event by the account manager or because it comes to the insurer’s notice.

Certificates to HMRC.

In the rare event of a gain on a termination event or earlier excess event exceeding half the basis rate limit, a certificate must be provided to HMRC reporting the same information about the event and gain as is required on the certificate to the investor. It must be in the prescribed format, see IPTM7160 to IPTM7190.

If the event is a termination event then it should be reported with code number 3 as a deemed full surrender.

The limit for providing the certificate to HMRC is three months from the later of:

• the date that the insurer first becomes aware of the termination event

• the end of the tax year in which the event occurred.