IPTM7560 - Chargeable event gains: number of years for top-slicing relief

Although insurers do not need to know how top slicing relief is calculated, they do need to report on certificates the number of years for top slicing relief purposes for every gain.

Policies and contracts from UK insurers (except post-16 March 1998 overseas life assurance business (OLAB) policies and contracts)

For a death, full surrender, maturity or whole assignment, the number of years is the number of complete years (periods of 12 months, not insurance years) from the date the policy or contract started until the date of the event, subject to a minimum of one. Where there have been one or more related policies –see IPTM7515 -the number of years must be calculated by reference to the date that the earliest related policy was made. The day on which the policy ends should be treated as a full day, so for instance if a policy begins on 1 September 2018 and ends on 31 August 2020 then the number of complete years is two.

For an excess event or a part surrender or assignment event, the number of years is the number of complete years from the end of the insurance year in which the most recent earlier event occurred until the end of the insurance year in which the current event occurred.

If there have been no previous excess events or part surrender or assignment events then the calculation of the number of years runs from the start of the policy or contract, or the earliest related policy, until the end of the insurance year in which the current event occurred.

If there is more than one part surrender or assignment event in an insurance year then the number of years for top slicing relief purposes is the same for each event.

For a personal portfolio bond event, insurers must always report the number of years as 1. This is because top slicing relief is not available on gains on personal portfolio bond events.

Example

A life policy was taken out on 17 January 2015. It is not an OLAB policy. There was a part surrender or assignment event on 23 August 2017, an excess event on 16 January 2019 and full surrender on 10 May 2019.

Event on 23 August 2017: This event occurred in the insurance year ended 16 January 2018 and there are 3 complete years to this date from the start of the policy.

Event on 16 January 2019: There is 1 complete year from the end of the insurance year in which the previous part surrender or assignment event occurred until the end of the insurance year in which the excess event occurred.

Event on 10 May 2019: As this is a final event, the number of years is counted from the start of the policy. There are 4 complete years in this period.

Policies from overseas insurers and post-16 March 1998 OLAB policies

The rules are slightly different for:

• OLAB policies and contracts that were made, or varied to increase the benefits or extend the term, on or after 17 March 1998
• life policies and capital redemption policies from an overseas insurer.

In such cases, for an excess event or a part surrender or assignment event, the ‘number of years’ is the number of complete years the policy or contract has run from the start of the policy or contract, or the earliest related policy, until the end of the insurance year in which the event occurred.