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
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
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.