Where a financial adviser or other intermediary has received commission from the insurer in respect of premiums paid on a policy or contract and passes on some or all of that commission to the policyholder, or a person connected with the policyholder, the amount of premium allowed in ‘total deductions’ in the gain calculation must not include the amount of commission rebated if
A similar rule applies where instead of being rebated, the
commission is reinvested into the policy as additional premium.
Then the amount of premium allowed in the gain calculation in
‘total deductions’ is restricted to the amount of
premium paid by the policyholder and does not include the
commission reinvested as additional premium.
However, it does not apply to the common arrangements where
the financial adviser gives up a right to commission in return for
enhancing policyholder benefits, for instance by way of allocation
of bonus units, and there is no additional premium. It also does
not apply where there are ‘commission menu’
arrangements where the intermediary selects an entitlement to
commission which is less than the maximum payable by the insurer
and the insurer enhances policyholder benefits as a result.
Where rebated or reinvested commission affects the calculation of the gain as described above, this will not be reflected in the gain shown on a chargeable event certificate, if any. Then the amount of commission rebated or reinvested as premium must be added to the reported gain to arrive at the full chargeable event gain that must be reported on the liable person’s tax return.
| Further reference and feedback | IPTM1013 |
