In general, payments under a policy which qualified as an Immediate Needs Annuity when it was taken out, including policies taken out before 1 October 2004 if they would have met the qualifying conditions at the time they were taken out, which are
are not taxable income of the insured person.
To qualify for the exemption, a policy must meet the qualifying conditions when it was taken out. In other words, an ‘ordinary’ Purchased Life Annuity - see IPTM4220 - cannot become an Immediate Needs Annuity. Where an existing contract is topped up, for example, to provide for personal or nursing care, the likelihood is that the ‘top-up’ would constitute a new contract and this could meet the qualifying conditions.
It is possible to buy an Immediate Needs Annuity on ‘the life of another’. Payments under such a policy can qualify for the exemption.
The detailed rules are set out below.
If any payment, or any part of any payment, is made directly to the insured person or after their death, see IPTM6220.
Payments received from an insurance policy are exempt from tax if they are made
A payment from an insurer under an Immediate Needs Annuity received by a care provider that is not a local authority will generally be a trade receipt. Further advice is available at BIM40050 onwards.
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