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Life policyholder taxation

Part assignments by way of gift
One of the changes made in Schedule 28 Finance Act 2001 was that an assignment of part of the rights under a policy by way of gift which takes place in a policy year which begins after 5 April 2001 will no longer be capable of giving rise to a chargeable event.

But in the calculation of the chargeable event gain on the later assignment for consideration of the whole of the rights under a policy under which a previous assignment of part of the rights has taken place the legislation still required the value of any previously assigned share in the rights under the policy to be added back.

The value to be added back will include, on the current wording of the legislation, the value of any previously assigned share in the rights under the policy by way of gift (based on the surrender value at the time of the part assignment). This will inflate any chargeable event gain and therefore be brought into charge to tax. Of course, if the assignment of part of the rights by way of gift took place in a policy year which began after 5 April 2001 such value should not be taxable. The legislation will therefore be amended to exclude from the chargeable event calculation, the value of an assignment of part of the rights under a policy by way of gift where the assignment of the whole of the rights under a policy for consideration occurs after 5 April 2002.

Qualifying policies
A chargeable event can arise under a qualifying policy in connection with a surrender or an assignment of the whole of a policy or a part of a policy when it occurs within 10 years of commencement or three-quarters of the term if less, or when the policy has been made paid up within that period. In this connection, the Inland Revenue Press Release states as follows:-

&#34Owing to a technical defect in last year&#39s Finance Act, the conditions limiting when such a sale or surrender of part of a qualifying policy gives rise to a tax charge were inadvertently disapplied. A measure will correct that defect and ensure that the conditions limiting when a tax charge arises will apply in the appropriate circumstances.&#34

The Release also states that the measure will &#34ensure that the protection from higher rate tax given historically to owners of qualifying policies is not limited by the changes made in last year&#39s Finance Act. The part of the measure dealing with chargeable events on qualifying policies is to have effect for all policy years beginning on or after 6 April 2001.&#34

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