Income Tax (Trading and Other Income) Act 2005 section 488

Disregard of some events after alterations of life insurance policy terms

Section 488 provides that certain chargeable events arising after the terms of a long-standing life insurance policy are altered can be disregarded, provided specified conditions are met.

• Where the terms of a life insurance policy that is at least 20 years old are altered (for example, by the insurer effectively making the policy paid-up), and the alteration itself does not constitute a chargeable event, the provisions of this section may apply provided the conditions in section 489 are also satisfied.
• Once the alteration has taken place, a chargeable event is only treated as occurring in relation to the policy if it would have occurred anyway had the terms never been changed — in other words, any chargeable event arising solely because of the variation is disregarded.
• If the insurer gives effect to the alteration by replacing the original policy with a new one, both the original and replacement policies are treated as a single policy for the purposes of this section and section 489, so the disregard continues to apply seamlessly.
• This section originated from the statutory enactment of Extra-Statutory Concession A96, which previously allowed HMRC to apply the same treatment on a discretionary basis.