IPTM7625 - Part surrenders and assignments: transaction- related calculations: part surrender or assignment events

Circumstances where a ‘part surrender or assignment event’ can arise

IPTM7605 and IPTM3560 explain how to calculate whether there is a gain at the end of the insurance year when there have been part surrenders or part assignments for money or money’s worth during the year.

If there is such a gain, there are two sets of circumstances where what are called ‘transaction- related calculations’ need to be carried out to see if there is a gain on a ‘relevant transaction’, that is a part surrender or part assignment for money or money’s worth.

These circumstances are where during the insurance year

• there has been a part assignment of the policy or contract for money or money’s worth, or
• there has been both

If a transaction-related calculation shows a gain on a relevant transaction in either of these circumstances then the relevant transaction is a chargeable event, called a ‘part surrender or assignment event’. If neither of these circumstances applies then there is simply an excess event at the end of the insurance year as described in IPTM7615.

These events may be better known to insurers as section 546C(7) events, since that is the legislative reference in ICTA88. However policyholder taxation, except for companies, is now contained in ITTOIA05 so this manual primarily uses the term defined in ITTOIA05/S491 (4).

Date of part surrender or assignment event

The date on which a part surrender or assignment event arises is the date of the relevant transaction, not the date on which the insurance year ends. This mechanism is to ensure that the gain is attributed to the person liable at the time of the event, rather than the person liable at the end of the insurance year.

Both the date of the event and the date on which the insurance year ends need to be reported on chargeable event certificates.

Two or more relevant transactions in an insurance year

If two or more relevant transactions occur during the same insurance year then a transaction- related calculation must be carried out on each relevant transaction, in the order in which they occurred, to determine whether in each case a part surrender or assignment event has occurred.

Transaction-related calculation rules

The rules for calculating the gains on relevant transactions in other than the final insurance year are described in IPTM3585. There are special rules where there are gains on relevant transactions in the final year, requiring the calculation of a ‘gains limit’. These are described at IPTM3590.

The operation of the transaction-related calculation rules is best illustrated by examples - see IPTM7630 to IPTM7645.