IPTM7310 - Chargeable events: qualifying policies: individuals: when chargeable events arise

Where the person who would be chargeable on any gains under a policy is an individual, a qualifying policy will only give rise to chargeable events in restricted circumstances. For the purposes of reporting gains, an insurer may assume that where the policyholder is an individual, he or she is also the chargeable person. The meaning of ‘qualifying policy’ is covered at IPTM8000 onwards.

Time-served policies

A policy is what might be called ‘time-served’ if it has run for at least 10 years from when the insurance was made or, if sooner, three-quarters of the expected term, namely the term if the policy is not ended by death or disability. Thus, for instance, if a policy has a term of 12 years then it becomes time-served after 9 years and if it has a term of 16 years then the policy becomes time-served after 10 years since this is less than three-quarters of the term.

If there has been a variation of the policy that increases the premiums payable, see IPTM7315, then the time-served clock starts running instead from the date of variation. This means that a policy is time-served if it has run for at least 10 years from the date of the variation or, if sooner, three-quarters of the expected term remaining from the date of variation.

Where a new qualifying policy is issued in substitution for a foreign policy within 12 months of policyholder becoming resident in the UK under the qualifying policy rules in ICTA88/SCH15/PARA17 (3), the time-served clock starts from the date that the substitute insurance was made.

When chargeable events arise on qualifying policies

Once a qualifying policy becomes time-served, it cannot give rise to any of the chargeable events listed in IPTM7305, with the exception of personal portfolio bond events, unless it was converted into a paid-up policy before it became time-served, in which case the full range of chargeable events may arise. This is assuming that there is no variation of the policy once it becomes time-served. There is no definition of ‘paid-up’ in the statute but its meaning is discussed at IPTM3310.

Where events arise before the policy becomes time-served, the position is as follows.

• A surrender, assignment for money or money’s worth or excess event will be a chargeable event if it occurs before the policy becomes time-served.
• A part surrender or assignment event will be a chargeable event if the insurance year in which the event occurs ends before the policy becomes time- served. Note that such an event is distinguished from an excess event because, unlike the latter, it will not normally occur at the end of the insurance year - see IPTM7625 onwards.
• Death or maturity will not be a chargeable event unless the policy was made paid-up before it becomes time-served.

It would be most unusual for a qualifying policy to be a personal portfolio bond, but if it were, personal portfolio bond events would arise irrespective of whether the policy was time-served or not.