How is the value of a partial surrender of a life insurance policy determined under section 508?

Under section 508 of the Income Tax (Trading and Other Income) Act 2005, the value of a partial surrender is generally the amount the policyholder actually receives — whether as a cash sum or other benefits. This figure is then used in calculating any chargeable event gain under sections 507, 511 and 512 of the Act.

What special valuation rules apply when an insurer loan is treated as a part surrender?

When an insurer makes a loan to the policyholder and it is treated as a part surrender under section 500(c), the value for chargeable event gain purposes is simply the amount of the loan itself. This is a specific exception to the general rule of using the amount actually received by the policyholder upon surrender.

How are partial assignments of life insurance policy rights valued under section 508?

When a policyholder assigns part of their rights under a policy to another person rather than surrendering them, the value is taken to be the surrender value of those rights at the time of assignment. This provides an objective measure regardless of whether the assignee paid any consideration for the transfer.

Are trivial inducement benefits included when valuing partial surrenders or assignments?

No. Certain minor benefits known as trivial inducement benefits must be disregarded when determining the value of rights partially surrendered or assigned. This exclusion is governed by section 497 of the Income Tax (Trading and Other Income) Act 2005, ensuring that insignificant benefits do not inflate the chargeable event gain calculation.

Income Tax (Trading and Other Income) Act 2005 section 508

The value of rights partially surrendered or assigned

Section 508 explains how to determine the value of rights under a life insurance policy or capital redemption contract when only part of those rights is surrendered or assigned, for the purposes of calculating chargeable event gains.

When part of the rights under a policy or contract is surrendered, the value is generally the amount paid or benefits received as a result of that surrender.
Where the surrender takes the form of a loan from the insurer (as treated under section 500(c)), the value is simply the amount of the loan itself.
Where the surrender involves payments under guaranteed income bonds or similar arrangements (as treated under section 500(d)), the value is the amount to which section 504 applies.
When part of the rights is assigned rather than surrendered, the value at the time of assignment is taken to be its surrender value at that point.

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