REV BN 2: Immediate Needs Annuities

Who is likely to be affected?

1. Individuals who take out policies to cover the immediate costs of long term care and insurance companies that provide such policies.

General description of the measure

2. This measure will ensure the continued exemption from tax of immediate needs annuity payments made by an insurance company for the provision of an individual’s long term care. Consequential changes to the tax rules applying to the insurance companies that provide these annuities will also be made.

Operative date

3. 1 October 2004

Current law and proposed revisions

4. People using immediate needs annuities to fund the costs of long term care were treated as being not liable to tax on the payments made by insurance companies under these annuity contracts. Considerable doubt has emerged as to whether this is the correct treatment and legislation is therefore being introduced to ensure that these annuities can continue to be paid tax-free.

5. An insurance company’s taxable profits from writing such business will be calculated according to the normal rules for trading profits that already apply to Permanent Health Insurance business, not according to the special rules that apply to much life assurance business.

6. The legislation will apply to existing policies as well as to new policies taken out after the operative date.

Further advice

7. If you have any questions about this change, please contact Carolyn Willans on 020 7438 6286.

www.inlandrevenue.gov.uk