IPTM7630 - Transaction-related calculations: example: part assignments for money or money's worth

This example illustrates the straightforward case where there is a part assignment for money or money’s worth during the year, showing how the gain on the assignment arises on the person assigning part of the policy and that person is due the chargeable event certificate.

Transactions

A single premium policy was taken out on 10 June 2010 with a premium of £10,000 by joint policyholders Simon and Tony.

• On 6 January 2014, Simon and Tony assign the rights under the policy to Tony, who becomes sole owner. Tony pays Simon £5,000 in return, which is the value of 50% of the policy at that date
• On 1 May 2017, Tony assigns the policy to Tony and Suzanne jointly, and in return Tony acquires an appropriate share of Suzanne’s flat. The value of the policy is £12,000.

Chargeable events

6 January 2014: Tony is an owner both before and after the assignment so the transfer is treated as an assignment of half the policy from Simon to Tony for consideration of £5,000 and a transaction-related calculation needs to be carried out.

The part assignment took place in the 4th insurance year so the allowable element of the premium is 4 x 5% x £10,000 = £2,000. There is a gain of £3,000 (that is, £5,000 – £2,000) and a part surrender or assignment event occurs on the date of the relevant transaction, 6 January 2014, which falls in tax year 2013-2014.

The gain is taxable on Simon but as the end of the insurance year in which the event occurs falls on 9 June 2014 in tax year 2014-2015, the gain is taxable on him in that later year, rather than the tax year in which the event occurs.

A chargeable event certificate must be sent to Simon as the ‘appropriate policyholder’ immediately before the assignment. Assuming the insurer was informed promptly of the event, this certificate must be delivered to Simon by 9 September 2014, that is within 3 months of the end of the insurance year in which the event occurred.

1 May 2017: The part assignment is for consideration as Tony exchanges his share of the policy for a share in Suzanne’s flat. The value of the part assignment is £6,000. It falls in the 7th insurance year so the allowable element of premium is £1,500 (that is, 7 x 5% x £10,000 = £3,500 less the amount already used of £2,000). There is a gain of £4,500 and a part surrender or assignment event on 1 May 2017. The gain is taxable on Tony in 2017-2018, the tax year in which the insurance year ends and a certificate must be sent to Tony reporting this gain within 3 months of the end of the insurance year, by 9 September 2017.