Income Tax (Trading and Other Income) Act 2005 section 489

Conditions applicable to alterations of life insurance policy terms

Section 489 sets out the five conditions (A to E) that must all be met for certain changes to a life insurance policy to be disregarded for tax purposes under section 488, ensuring the relief is not exploited for investment purposes.

• The policy must have been issued at least 20 years before the alteration, and the change must result from the insurer's decision to stop collecting premiums on a class of similar policies after a set period (Conditions A and B).
• No premiums may be payable or paid after the date of the alteration, and the benefits provided after the change must be the same or substantially the same as those before it (Conditions C and D).
• A reduction in benefits can be disregarded when assessing Condition D, provided it does not exceed the total net premiums (after deducting any tax relief) that would otherwise have been payable between the alteration date and the date benefits become payable.
• The premiums payable before the alteration must not have been reduced to a nominal amount through the exercise of an option connected with a right to partially surrender the policy, nor must they be capable of being so reduced (Condition E).