Taxes If Change Life Assured on Qualifying Life Insurance Policy

Published / Last Updated on 02/12/2021

Many people may not know but many life insurance policies are qualifying life insurance policies in that they pay no income taxes when paid out either on death or encashment or surrender.  Process may be subject to inheritance taxes on death but not income taxes.

Life Insurance Qualifying Rules

  • Minimum Term 10 years.
  • Policy must run for a least 10 years or on death (if sooner).
  • 75% of the total premiums paid my pay for the ‘death’ i.e.  life insurance element and a maximum of 25% goes to any savings/investment element of a policy.

Changing the Life or Lives Assured may mean your policy loses its qualifying position and becomes a non-qualifying policy meaning it may create a ‘chargeable event’ and be subject to income taxes when paid out or life assured changed.

Losing Qualifying Status and Become Non-Qualifying

  • Changing life assured made within 10 years of the policy start or 3/4 of the term (if shorter).
  • Changing the cover or premiums payable within 10 years of the policy start or 3/4 of the term (or less) UNLESS there was an automatic, built in option to increase premiums of the cover e.g.  increasing premium policies or an option to increase cover on marriage or birth of a child.
  • Changes made to the policy after it has been ‘made paid up’ i.e.  frozen within 10 years of the policy start or 3/4 of the term (if shorter).
  • At this point, a new 10 year qualification period starts.

But, if the change made results in a new endorsement issued on the existing policy or a brand new policy is made with the value from the existing policy put into the new policy to subsidise premiums, this may mean qualified status may remain.

Exclusions (i.e.  not losing qualifying status and not creating a chargeable event):

Divorce and changing life assured or ownership of benefits is not considered an assignment.

It can be even more complex if premiums are £3,600 pa or more.  You need to take advice from us when making any changes to life assurance policies to avoid creating chargeable events to income tax.

Contact  Call Back  Calculators  Our Fees

Related Videos

Videos Channels

Explore our Site

Money MOT
T and C