How is the value of a life insurance policy determined on a chargeable event under section 493 ITTOIA 2005?

Under section 493, the value on events such as full surrender, maturity, or final profit participation is the total sum payable plus, for life insurance or capital redemption policies, the capital value of any periodic payment rights arising at the time they arise, together with the amount or value of any other benefits arising from the event.

What valuation rule applies when a life insurance policy is assigned between connected persons?

When a policy or contract is assigned between connected persons — such as family members or an individual and a company they control — section 493 deems the assignment to have been made for market value consideration, regardless of the actual amount paid. Connected persons are defined in section 878 of the Act.

How is the value of a guaranteed income bond calculated on a deemed surrender?

For guaranteed income bond contracts where the last payment is treated as a total surrender, the normal valuation rules do not apply. Instead, the value of the rights treated as surrendered is simply equal to the amount of that final payment, providing a straightforward calculation matching the deemed surrender value to the actual payment received.

What is the value of a life insurance policy when death is the chargeable event?

Where death itself is the chargeable event, the value of the policy is its surrender value immediately before the death occurred. This ensures the gain calculation reflects the economic value of the policy at the point just before the insured event, rather than any death benefit sum subsequently paid out.

Income Tax (Trading and Other Income) Act 2005 section 493

The value of a policy or contract

Section 493 explains how to determine the value of a life insurance policy, capital redemption policy, or life annuity contract when a chargeable event occurs, with the method of valuation depending on the type of event that has taken place.

For events such as full surrender, final profit participation, maturity, or death/capital sum under a life annuity, the value is the total of any sum payable plus, for life insurance or capital redemption policies, the capital value of any periodic payment rights and any other benefits arising from the event.
For guaranteed income bond contracts where the last payment is treated as a total surrender, the value of the surrendered rights is simply the amount of that final payment.
Where the chargeable event is an assignment of all rights, the value is the consideration received, but assignments between connected persons are deemed to take place at market value.
Where death is the chargeable event, the value of the policy is its surrender value immediately before the death occurred.

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