Income Tax (Trading and Other Income) Act 2005 section 513

Special rules for part surrenders and assignments in final insurance year

Section 513 caps the total gains arising from part surrenders and assignments in the final insurance year so that, when combined with the gain on the event that ends the policy or contract, the overall charge does not exceed what would have arisen on the final event alone had no transaction-related calculations been made.

• The section applies when a transaction-related gain calculation is required in the final insurance year and the cumulative transaction values exceed the gains limit, provided this cap has not already been triggered by an earlier transaction in the same year
• The total transaction value is the sum of the current transaction's value and the values of all earlier relevant transactions in the final insurance year for the same policy or contract
• The gains limit is the hypothetical gain that would have arisen on the chargeable event ending the final insurance year, calculated as if the transaction-related rules had not applied at all
• Once the cap is reached, the transaction value of the triggering transaction is reduced by the amount of the excess, and no further transaction-related calculations are required for any subsequent transactions on the same policy or contract