IPTM8425 - Friendly society tax exempt policies: qualifying policy rules: term and premium paying term of the policy

Term of a tax exempt policy (ICTA88/SCH15/PARA3(2))

The most common type of tax exempt policy is an endowment policy that has a specified maturity date. This must be at least ten years from the date that the policy was made, subject to an exception for certain very small policies for minors – see below.

Whole life tax exempt policies are less common. They have no specified maturity date and run until the death of the individual insured.

Premium paying term of a tax exempt policy

Strictly, premiums must be payable for the whole term of the policy unless the policy provides that premiums will cease once the person insured under the policy reaches a specified age which must be attained at least ten years after the policy was made.

However, as this is equivalent to premiums being payable for at least ten years, HMRC will accept that this condition is met where instead the policy specifies a premium paying term of at least 10 years from when the policy was made.

This applies to both life-and-endowment policies and to whole life policies.

Date policy was made and backdating

The date that the policy was made reflects contract law in the same way as for any other life insurance policy – see IPTM8045.

As with qualifying policies generally, if the start date of cover under a tax exempt policy is backdated by up to three months from when the policy was actually made, then the qualifying policy tests apply from the backdated start date rather than the date the policy was made. Any premiums payable during the backdated period are regarded as payable on those earlier due dates, and not when the policy was made.

Policies for minors

A tax exempt policy that provides a payment to a person aged 18 or under may have a term of 5 years or longer and still qualify, so long as the premium payable for any period of 12 months does not exceed £13 (ICTA88/SCH15/PARA3(3)).