IPTM7550 - Calculation of gains on capital redemption policies held by companies

The chargeable event gain rules no longer apply to companies from the ‘start date’ of the first day of the first accounting period of a company that began on or after 1 April 2008. Instead the loan relationships rules in CTA09/PT6/CH11 apply to policies and contracts owned by a company. IPTM3900 onwards explains the current rules.

Whereas life policies and purchased life annuities are only brought within the loan relationships legislation from the start date, capital redemption policies were brought within the loan relationships legislation from 10 February 2005.

Capital redemption policies owned by companies were still within the chargeable event regime in ICTA88/PT13/CH2 until the start of the first accounting period of the company to begin on or after 1 April 2008 but where they were taxed under the loan relationships legislation, no chargeable event gains could arise. This is because under ITTOIA05/S527 (and previously ICTA88/S547(2)) any amount taxed under the loan relationships legislation is excluded from the chargeable event gain calculation.

Insurers’ reporting requirements

In most cases where a company is the policyholder it will also be taxed under the loan relationships legislation and no gain will arise. Therefore, an insurer need not issue chargeable event certificates for a capital redemption policy for events arising on or after 10 February 2005 where it knows that the policyholder is a company unless it has information to suggest that the taxable person is different from the policyholder and is not a company.

HMRC has, however, agreed that it is also acceptable for an insurer to continue to issue chargeable event certificates in respect of capital redemption policies held by companies if it is more convenient. An insurer may wish to take this approach, for instance, if it is difficult under its systems to separate company policyholders from other policyholders.

Commencement and transition arrangements for capital redemption policies taken out before 10 February 2005

Any policies held by a company on 9 February 2005 and which fall within the loan relationships legislation from 10 February 2005 are deemed to have been assigned for money or money’s worth on 9 February 2005 at the carrying value in the company’s accounts.

Any gain on this deemed assignment is deferred until the policy matures, is surrendered or is assigned. However, insurers are required to report details of this deemed assignment to the policyholder and HMRC under the normal reporting rules.