What is a trivial inducement benefit under section 497 of ITTOIA 2005?

A trivial inducement benefit is a small non-monetary benefit, such as a promotional item, offered by an insurance company to encourage someone to take out or transact on a life insurance policy. If the total cost to the insurer of all such benefits connected with the policy does not exceed £30, they are disregarded when calculating any chargeable gain.

How does the £30 limit apply to linked or clustered insurance policies?

Where insurance policies have substantially identical terms and the issue of one was contemplated when the other was issued, they are treated as linked. The £30 cost cap is applied across all linked policies taken together rather than separately for each one, preventing circumvention by splitting a single arrangement into multiple policies.

What happens if the total cost of inducement benefits exceeds £30?

If the combined cost of all non-monetary inducement benefits connected with a policy or linked policies exceeds £30, none of the benefits qualify for the disregard. All benefits must then be taken into account when calculating the chargeable gain on the policy, not just the amount exceeding the threshold.

Can the Treasury change the £30 threshold for trivial inducement benefits?

Yes, the Treasury has the power to increase the £30 threshold by secondary legislation. However, the legislation does not permit any reduction of the limit. Any such order would be made under the procedural rules set out elsewhere in the Income Tax (Trading and Other Income) Act 2005.

Income Tax (Trading and Other Income) Act 2005 section 497

Disregard of trivial inducement benefits

Section 497 provides that small non-monetary benefits offered by insurance companies as inducements to take out or transact on life insurance policies can be ignored when calculating any chargeable gain under this chapter.

Non-monetary benefits provided by an insurance company as an inducement to enter into a policy or contract, or a later transaction on one, are disregarded when calculating gains under this chapter, provided the total cost to the insurer does not exceed £30.
The £30 limit applies to the combined cost of all such benefits provided in connection with the policy or contract and any linked policies or contracts — that is, policies with substantially identical terms where the issue of one was contemplated at the time the other was issued.
The Treasury has the power to increase (but not decrease) the £30 threshold by secondary legislation.
The linked policy rule addresses the insurance industry practice of issuing "clusters" of policies, ensuring the cost limit is applied across the cluster as a whole rather than per individual policy.

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