What types of life insurance policy assignment are disregarded under section 487 ITTOIA 2005?

Section 487 disregards three categories of assignment: assignments of policy rights used as security for a debt, reassignments when such a debt is discharged, and transfers of policy rights between spouses or civil partners who are living together. These assignments are completely ignored under the chargeable events rules and do not trigger any tax charge.

Does using a life insurance policy as collateral for a loan create a chargeable event?

No. Under section 487 of ITTOIA 2005, assigning a life insurance policy to a lender as security for a loan is completely disregarded for chargeable events purposes. When the debt is repaid and the policy is reassigned back, that transfer is also ignored. The policy continues to be treated as though the assignment never occurred.

Is transferring a life insurance policy to a spouse or civil partner a chargeable event?

No. Section 487 provides that assignments of life insurance policy or capital redemption contract rights between spouses or civil partners living together are completely disregarded. This is consistent with the general UK tax principle of no-gain, no-loss treatment for transfers between cohabiting spouses or civil partners.

What is the practical effect of a disregarded assignment under section 487?

A disregarded assignment is treated as though it never happened for all purposes under the chargeable events rules. It does not affect gain calculations on a later surrender or maturity, nor does it alter who is treated as the policyholder. All future chargeable event calculations proceed as if the original holder retained the policy throughout.

Income Tax (Trading and Other Income) Act 2005 section 487

Disregard of certain assignments

Section 487 identifies certain types of assignment of rights under a life insurance policy or capital redemption contract that are to be completely ignored for the purposes of the chargeable events rules.

Assignments used as security for a debt (e.g. pledging a policy as collateral for a loan) are disregarded.
Assignments made when a debt previously secured against the policy rights is discharged are also disregarded.
Transfers of policy rights between spouses or civil partners who are living together are ignored.
These disregarded assignments are not chargeable events and have no effect on any other calculation under the chargeable events rules for that policy or contract.

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