Income Tax (Trading and Other Income) Act 2005 section 512

Available premium left for relevant transaction

Section 512 explains how to calculate the amount of premium still available to set against a relevant transaction (such as a part surrender or part assignment) on a life insurance policy, for the purposes of working out whether that transaction produces a chargeable gain.

• The available premium for a relevant transaction is the excess of the available net allowable payments (broadly, the remaining unused premiums) over the available net total values for the year (broadly, the cumulative value of part surrenders and part assignments not yet used in gain calculations).
• If an earlier relevant transaction in the same insurance year has already produced a gain, the available premium for any subsequent relevant transaction in that year is automatically nil — meaning the full transaction value becomes the gain.
• The available net allowable payments are found by taking the net total allowable payments at the year end (which already exclude premiums used in gains from previous years' calculation events), and then subtracting the transaction values of any earlier relevant transactions in the current year that did not produce a gain.
• The available net total values for the year are found by taking the cumulative net total value of rights surrendered or assigned at the year end (excluding values already absorbed in previous years' gains), and then subtracting the value of any part surrenders or part assignments for money or money's worth that took place during the current insurance year.