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

Restricted relief qualifying policies: assignments and events following assignments etc

Section 463D deals with the tax treatment of life insurance policy gains where a policy loses its qualifying status following an assignment or other relevant event, and provides a mechanism for partial tax relief on the gain.

• Where a life insurance policy loses its qualifying status as a result of an assignment or similar event, the restricted relief formula under section 463A(3) can still be applied to reduce the taxable gain.
• The relief calculation treats the policy as if it were a "policy X" under the restricted relief rules, but only premiums paid during the period before the assignment or relevant event are taken into account.
• This ensures that the policyholder receives proportionate relief reflecting the period when the policy was a qualifying policy, rather than losing relief entirely because of the subsequent event.
• If the non-UK residence relief under section 528 also applies to the gain, the restricted relief reduction under section 463A(3) must be calculated first, and the section 528 reduction is then applied to the already-reduced gain.