7. LIFE POLICYHOLDER TAXATION
Legislation will be included in Finance Bill 2001 to clarify and simplify the tax treatment of transfers of shares in life insurance products. New measures will also be introduced to require insurance companies to give details of life policy gains to their policyholders. The new rules on transfers will have effect for policy years (see 'Timing' below) beginning on or after 6 April 2001 but insurers will have until 6 April 2002 to put in place the systems they need to be able to tell their policyholders about their gains.
The new rules will:
- make the tax treatment clearer where part of the rights in a life insurance policy are transferred by ensuring that
- the tax charge on transfers of part of the rights under an insurance policy or contract will be determined by reference to the part of the rights transferred and the tax charge on such transfers will be the same in England and Wales as it is in Scotland,
- the person who gives up the interest will be liable for any tax that is due on the transfer,
- transfers for no consideration of part of the rights under a life policy or contract will no longer be liable to income tax; and
- make it easier for policyholders with a taxable gain to complete their self assessment return for transfers made on or after 6 April 2002 because insurers will tell their policyholders whether they have made a gain for income tax purposes on their life policy or contract and the amount of that gain.