SINGLE PREMIUM LIFE INSURANCE COMPANIES General Overview

SINGLE PREMIUM LIFE INSURANCE COMPANIES General Overview

In the United Kingdom, the rules concerning the taxation of offshore life insurance policies (or life insurance bonds or wrappers) are complex. The following summary outlines the basic features of life insurance bonds and planning tips for individuals (not trusts or companies).

Single premium life insurance bonds are “non-qualifying policies” for UK tax purposes. It follows that:

  • Income and capital gains accruing within the policy are not subject to tax until a “chargeable event” occurs.
  • An individual can withdraw up to 5% of the premium in each policy year for 20 years without an immediate charge to tax. These withdrawals are treated as a return of the premium while the 5% can be carried forward and used in future years, not limited to 20 years.
  • Profits arising on a chargeable event (chargeable gains) are subject to income tax (up to 45%).

Chargeable events arise in the following circumstances:

  • Full surrender of the policy;
  • Assignment of the whole policy for money or money’s worth;
  • Maturity of the policy;
  • Death giving rise to benefits;
  • Certain partial withdrawals where the 5% limit is exceeded;
  • Certain policy loans; or
  • A “personal portfolio bond event” showing a gain.

Please note that losses arising on a chargeable event cannot be offset against other taxable income.

 

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