Income Tax (Trading and Other Income) Act 2005 section 542

Replacement of qualifying policies

Section 542 provides that when a qualifying life insurance policy is replaced by another qualifying policy — typically due to a change in the lives insured — the two policies are treated as a single policy for the purposes of determining chargeable events and calculating gains.

• A replaced qualifying policy and its replacement are treated as one single policy for chargeable event purposes, provided four conditions (A to D) are all met
• The replacement must itself be a qualifying policy, and the replacement must arise from a change in the life or lives insured (for example, adding or removing a life on marriage or divorce)
• Any sum payable by the insurer on termination of the original policy must be retained by the insurer and applied towards premiums due under the replacement policy, and no other monetary consideration may be received by anyone in connection with the switch
• The combined single policy is treated as having been issued at the date the original replaced policy was made, and this treatment extends to any second or subsequent replacement policies in the same chain