Income Tax (Trading and Other Income) Act 2005 section 507A

Recalculating gains under section 507

Section 507A allows policyholders who have part surrendered or part assigned their life assurance policies and generated a wholly disproportionate taxable gain to apply to HMRC to have that gain recalculated on a just and reasonable basis.

• A person liable for tax on a gain arising from a part surrender or part assignment of a life insurance policy may apply in writing to HMRC for a review if the gain is wholly disproportionate, within four tax years of the gain arising (or longer if HMRC agrees).
• HMRC may consider various factors including the economic gain on the rights surrendered or assigned, the premiums paid, and the tax that would otherwise be chargeable, and if the gain is found to be wholly disproportionate, must recalculate it on a just and reasonable basis.
• Where two or more persons are liable for tax on the gain, they must apply jointly, and HMRC must notify all of them of the outcome; all necessary tax adjustments and repayments must then be made.
• No recalculation is available where the gain arises from arrangements whose main purpose, or one of whose main purposes, is to obtain a tax advantage for any person.