IPTM6135 - Sickness disability and unemployment insurance: anti- avoidance rules: bundles of benefits from one or more policies

Some policies may provide for payments to be made which do not relate only to a qualifying health or employment risk as described in IPTM6115. For example, a policy that insures against a qualifying health or employment risk could be packaged together and sold as one product with an investment policy or insurance against risks of a different type.

Similarly, a policy that insures against a qualifying health or employment risk may be linked to an investment policy or another insurance policy of a different type.

Such policies may exist for genuine commercial reasons, but both situations present an opportunity to price the two different elements artificially, while not affecting the overall cost, and thus gain a tax advantage.

An advantage could accrue for example if the ‘other’ policy was over-priced and the premium paid for it attracted tax relief, while the payments received from the qualifying health or employment risk element would, without the special rules outlined below, be free of tax. In this way the policyholder would obtain tax relief for premiums and tax-free benefits from the policy, at odds with the intention of the exemption set out at IPTM6110.

Where policies are contrived in these ways no part of the payments from those policies will qualify for the exemption. But if the qualifying health or employment risk part of the overall package was insured on an arm’s length basis, the payments received which relate to the qualifying risk – see IPTM6115 – will qualify for the exemption.

Policies providing other benefits

Where a policy provides other benefits in addition to those relating to a qualifying health or employment risk, the policy terms that relate to the qualifying health or employment risk must not differ significantly from what they would have been had the policy only insured against the qualifying risk.

Linked or connected policies

Where a policy that insures against a qualifying health or employment risk is linked to another policy, the policy terms that relate to the qualifying health or employment risk must not differ significantly from what they would have been had there not been any policies linked to or connected with it.