IPTM7545 | Calculation of gains on group life policies

Group life policies and the chargeable event regime

A group life policy is a policy that insures the lives of more than one individual and pays benefits on the death of each of those individuals. A group life policy that only provides death benefits is taken outside the chargeable event regime, provided it meets the conditions to be an ‘excepted group life policy’ - see IPTM7025 to IPTM7050.

Where a group life policy does not meet the conditions to be excepted, the chargeable event gain rules apply to the policy and each death is a chargeable event requiring a gain calculation to be made.

Application of the chargeable event gain rule on deaths

The chargeable event gain on each death is calculated using the normal formula TB – TD – TG described in IPTM7510.

It is possible for gains to arise on the second and subsequent deaths under a group life policy even if the policy is a pure protection policy with no surrender value.

• TB is total benefit value. On the death in question, the surrender value immediately before death is included in TB, which will be nil for a pure protection policy. But any capital sums paid before the death in question must also be included in TB and these include any sums paid on previous deaths.

• TD is total deductions, which will be the total of premiums paid up to the date of the death in question, even if some of these premiums have already been taken into account in calculating the gain on an earlier death.

• PG is total of the gains on previous calculation events. It does not include gains on earlier deaths so on a pure protection policy, where there will have been no previous part surrenders or assignments, PG will be nil.