Income Tax (Trading and Other Income) Act 2005 section 463A

Restricted relief qualifying policies: disapplication of section 485 etc

Section 463A removes the normal tax exemption for qualifying life insurance policies that are classified as "restricted relief qualifying policies" on or after 6 April 2013, and provides a formula for reducing the taxable gain to reflect the proportion of premiums that qualify for relief.

• From 6 April 2013, restricted relief qualifying policies lose the protection of section 485, meaning chargeable events on these policies can give rise to a tax liability that would otherwise have been disregarded.
• Where a tax charge arises, the gain is reduced by the formula G × TAP / TP, where G is the full gain, TAP is the total allowable premiums paid during the policy period, and TP is the total premiums paid during the policy period.
• If a non-UK residence reduction under section 528 also applies, the restricted relief reduction must be calculated first, and section 528 then operates on the already-reduced gain.
• Certain premiums are excluded from the calculation, including amounts charged for exceptional death or disability risk, certain first premiums discharged under earlier policy arrangements (capped at £3,600 per complete year of the earlier policy), and any premiums waived due to disability.