IPTM2080 - Variations

ICTA88/SCH15/PARAA1 & A2

Variations

A variation occurs if the terms of a protected policy (IPTM2072) are changed on or after 21 March 2012 resulting in the premium period lengthening, the total premiums payable increasing or both.

Additionally, a protected policy that is changed on or after 6 April 2013 resulting in the premium period shortening, the total premiums payable decreasing (including the permanent cessation of premium payments, i.e. making the policy paid-up – see IPTM8210) or both will also be a variation.

A variation for the purposes of the annual premium limit must be a ‘significant variation’ for the purposes of ICTA88/SCH15/PARA17, as noted by ICTA88/SCH15/PARAA6, alongside one of the premium variations noted above. See IPTM8145 for the definition of a significant variation for the purposes of Paragraph 17.

The same consequences arise if an option under a policy is exercised with a resultant change in the premium period or amount as outlined above.

Consequences

Where a qualifying policy issued before 21 March 2012 is varied by increasing the premiums payable or period term on or after 21 March 2012 that policy will become a restricted relief qualifying policy (RRQP) from the date of the variation if the annual premium limit of £3,600 is exceeded with the possible exception of mortgage endowment policies. See IPTM2076.

Likewise, the variation of the policy to decrease premiums payable (including the permanent cessation of premium payments, i.e. making the policy paid-up – see IPTM8210) or the premium term is a premium limit event – that is the beneficiary, or beneficiaries, under the policy need to assess whether they are in breach of the annual premium limit following such an event. If the beneficiary is in breach of the annual premium limit then the policy will be a RRQP thereafter.

Reversing a variation

ICTA88/SCH15/PARAA1(6) & A2(7)

A variation will be ignored if the effect of that variation is cancelled within three months of the day the variation occurred. This nullification of the variation will not in itself constitute a variation but is treated as if the initial change never took place. The policy reverts back to its original state prior to this change.

If instead of a cancellation described above, a beneficiary decides to vary the policy again so that for example their premium limit is not breached but is reduced to the balance of £3,600 relief available, this is treated as another variation. The loss of qualifying status cannot be reversed in these circumstances and so the rectification provisions will not apply